JyllandsPosten refers to Bloomberg news:
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
“The Chinese producer of solar cells, Suntech, is in a precarious
position after the bonds the company has used as collateral for new
loans apparently have never existed.”
“…. it was the plan to sell off their 80% share of the European
subsidiary Global Solar Fund; but after auditing the subsidiary it has
emerged that a large holding of German bonds – used in 2010 as
collateral by Suntech to obtain a loan in China Development Bank –
presumably never existed.”
“German installations of photovoltaic solar panels more than doubled
in the first half, a setback for Chancellor Angela Merkel’s effort to
damp surging industry growth that’s being subsidized by electricity
Confusing? Maybe, maybe not.
I have before pointed out the considerable German investment in solar
cells at apparent rock bottom prices. I think we were talking
discounts as high as 40% (I might remember incorrectly), but anyway:
Prices so advantageous that you should be a fool not to buy – and the
Germans now a good deal, when they see it.
So of course the German bought with every implement at hand – or foot!
They probably paid in German bonds of one ilk or another.
The following is pure speculation on my part – but it seems to fit the facts.
The semi morons in Suntech apparently thought the Chinese goverments
pretentious blustering would work:
The American market was gone, so Suntech and others had to change to
the European market where they were under the impression that
substantial Chinese government purchases of EUR denominated German
bonds would debase the RMB relative to the EUR. In April 2011 you got
9.4 RMB for a EUR – having risen from 8.3 RMB/EUR in June 2010.
Presumably they reasoned with perennial optimistic overevaluation of
own ability that would continue so they would about now get 10-11 RMB
for one EUR – so of course the must have accepted prepayment in German
bonds – they could only make money on that – that might have been the
idea. That meant that they could offer a hefty discount – and still
make money – if from nothing else then volume.
So possibly it was this guilded edge pink optimism they banked on and
took the loan with the prepayment bonds as collateral. I might be
wrong; but also quite a bit nearer the mark for comfort.
Because the Suntech chaps apparently is somewhat wanting in the
thinking department, they might not have seen what came: July 2012 you
get only 7.8 RMB/EUR – leaving you around 20% short when the bank
wants its money.
So not only didn’t Suntech make a 20% profit speculating – it made a
20% loss on speculation – on top of the discount given to the German
distributors. And – if I’m not wrong – they have paid more for their
raw material and their workers than they budgeted.
What they did not see was that the heavy buy of German bonds by the
Chinese government resulted not in a raise of the EUR, but a dropped
the interest rate on German Bonds – if the price is right Mr. Schäuble
can make all the German Sovereign bonds he pleases – lend the money
out to Spain at 2 % higher interest rate.
You can curse all the way to mr. Romney and President Obama – but see
if mr. Schäuble cares!