All fall down
The problem for Suntech, and the entire solar industry, was that its growth model was being replicated all over China. Beijing had cited renewable energy as a key pillar in its five-year plan going back to 2006. Local government officials immediately went to work and helped create scores of new companies - 123 Chinese solar panel makers were in business by the end of 2010.
Capacity rocketed from virtually nothing a decade ago to 45 gigawatts now. Many operators - Suntech most prominently - managed on the assumption that the global gravy train of subsidies creating demand for panels would never end.
In late 2008 the US financial crisis erupted. Europe's own debt crisis soon followed.
Yet from 2009 to 2012, Shi expanded Suntech's capacity relentlessly: from 1000 MW to 2400 MW. He funded it with mostly short-term debt from local banks, totaling $1.57 billion by March 2012. The company's equity at the same point was just $803 million.
Shi had the backing of the Wuxi government headed by Yang Weize. No banker, in other words, was going to say no to the "Sun King".
Trouble followed. By the beginning of 2012, Suntech was struggling under mounting losses in a saturated industry.
Shi found himself increasingly at odds with his own board, in part over financial transactions that board members feel still have not been satisfactorily explained, industry sources said.
One of the biggest was Suntech's partnership with GSF Capital Pte Ltd, which Suntech described in a 2012 filing with the US Securities and Exchange Commission as "an entity owned by Javier Romero and his wife". Romero was a former Suntech agent in Spain. The partnership formed a joint venture called Global Solar Fund Sicar that mainly specialized in developing solar projects in Italy that use Suntech's panels.
Suntech owned 79 percent of the joint venture, Shi had 11 percent and GSF Capital, held the remaining 10 percent, according to the SEC filing.
The venture was financed with a 554 million euro loan from China Development Bank, which often provides money for strategic projects.
The bank demanded Suntech provide collateral for the loan. Suntech, however, did not want to book the liability on its already deteriorating balance sheet. So GSF Capital stepped in - or said it did, at least - by putting up 560 million euros in German government bonds as collateral.
Suntech, in turn, guaranteed the loan from China Development Bank.
Last August, Suntech announced that GSF had defrauded it by failing to post the bonds, which meant Suntech now had to make good on the loan guarantee, Suntech said in a filing with the SEC. Its stock plunged more than 37 percent in the days following the announcement, and Shi stepped down as chief executive.
In March of this year, Suntech's board forced Shi out as chairman two weeks before its Wuxi unit filed for bankruptcy protection. Suntech also settled the dispute with GSF Capital in March. As part of the settlement, GSF Capital sold its 10 percent stake in GSF Sicar to Suntech and Shi. A source close to Suntech says Suntech is seeking to sell its stake in the fund in order to help pay down debt.
US shareholders in Suntech, upset over what they allege were misleading disclosures about the joint venture with GSF, are pursuing a class action suit in the U.S. District Court, Northern District of California against Shi and several Suntech board members, according to a copy of the suit seen by Reuters,
Shi also faces an internal investigation at Suntech that began after he stepped down as executive chairman, according to a source with direct knowledge of the matter. The probe focuses on transactions between Suntech and one of its polysilcon suppliers, Asia Silicon Co. Ltd., of which Shi owns more than 90 percent. Polysilicon is a feedstock for solar cell and panel manufacturing.
That company is also the focal point of a lawsuit filed last December in the U.S. District Court, Northern District of California by a Suntech shareholder, Kent Ji. The suit, against Shi and four other current or former board members, alleges Suntech has been purchasing polysilicon at terms advantageous to Asia Silicon, which Shi co-founded in 2006.
In its regulatory filings, Suntech did not disclose the owners of the company, describing Asia Silicon as a private, independently owned company.
Ji's suit alleges that Suntech had given Asia Silicon interest-free loans and advance payments that benefited Shi at the expense of Suntech's minority shareholders. The suit says Suntech awarded a $1.5 billion, 16-year "take or pay" contract to Asia Silicon in January 2007, even though the company did not deliver any polysilicon to Suntech until the first half of 2009.
Ji's attorney declined to comment. Attorneys for Shi and Suntech did not respond to inquiries.
Chinese solar-industry executives told Reuters it was common for solar module manufacturers to lock in long-term "take-or-pay" contracts in those years. Under these agreements, the buyer either takes delivery of the product or pays a certain amount not to. It seemed like a good bet: Polysilicon prices were surging on supply shortages and soaring European demand for Chinese solar modules at the time.