Narrative
Full Description
Project narrative
In May 2010, China Development Bank Corporation (CDB) entered into a €554.2 million EUR ($683 million USD) loan agreement with Solar Puglia II, S.a.r.L. — an Luxembourg-incorporated special purpose vehicle (SPV) wholly-owned by Global Solar Fund, S.C.A., SICAR (GSF), a Luxembourg-incorporated investment fund specializing in the development of solar power projects mainly in Italy that was jointly owned by Suntech Power Holdings Co., Ltd., a Cayman Islands-incorporated, Wuxi, China-headquartered solar panel manufacturer listed on the New York Stock Exchange (86.00% equity stake), by GSF Capital Pte Limited, a Singapore-incorporated private firm wholly owned by Mr. Javier Romero, a Spanish businessman and former sales agent for Suntech who was also responsible for the day-to-day management of GSF (3.33% equity stake), and by Best (Regent) Asia Group Ltd., a British Virgin Islands-incorporated holding company owned by Shi Zhengrong, a Chinese billionaire businessman and founder, chairman, and chief executive officer of Suntech (10.67% equity stake) — to build 150 solar energy power stations in Italy. The loan was secured by (i.e. collateralized against) cash collateral accounts with a commercial bank in Luxembourg in an amount equal to one installment payment of amounts due under the finance facilities amounting to approximately €30.0 million EUR as charged by Suntech Power Holdings Co., Ltd. Suntech Power Holdings also issued a guarantee for the entire amount of the loan. As a hedge for its pledged security GSF received a pledge of €560.0 million EUR in German government bonds from GSF Capital Pte Ltd., the parent of the general partner of GSF, to be sold with the proceeds to pay the debt if CDB ever called in the guarantee. Events of default under the facilities included failure to pay amounts due on any payment date, failure of the borrower to comply with its financial covenant, failure by the borrower to comply with other provisions of the agreement subject to a 10-day cure period, any cross default by the borrower on other financial indebtedness in excess of €1.0 million EUR, bankruptcy or other events of insolvency, and any material adverse change in the business, property, liabilities, operations, prospects or financial condition of the borrower or us, or the ability of the borrower or us to perform its obligations under the agreement. In addition, in the event certain power plants to be developed were not connected to the power grid before December 30, 2010, CDB the right to declare a proportionate amount of the outstanding loans immediately due and payable representing the percentage of the power to be generated by the unconnected plants to the planned installed capacity of 123 MW. As of the end 2011, €325 million EUR of the CDB loan was reportedly outstanding. The proceeds were to be used by the borrower to build 150 solar energy power stations in Italy, in Puglia (Apulia). None of the power plants developed were connected to the power grid by December 30, 2010, and as a result CDB was entitled to demand immediate payment of the entire loan amount. GSF, however, received oral assurances from CDB that it did not intend to demand payment of the loan amount in the event the power plants were connected to the grid by June 30, 2011. As of December 31, 2011, approximately 145 MW of power plants had been completed, of which approximately 143 MW were connected to the grid. Suntech shipped solar panels in 2009 worth $115.8 million USD, $197,4 million USD in 2010, and $33.6 million USD in 2011 to GSF. The project had a value of $720 million USD. GSF had seven investee companies that were wholly-owned subsidiaries: Sicily Sun Power S.r.l, SV New S.r.l, Solar Puglia I S.r.l, Solar Puglia II S.r.l., Global Solar Fund Engineering Luxembourg S.r.l., GSF Capital Holland B.V., and Global Solar Fund Engineering Company Limited.. These investee companies designed, built, and operated solar photovoltaic stations mostly in southern Italy. Of these, Solar Puglia was the most important and largest. On July 30, 2012, Suntech announced the existence of possible fraud in relation to the Puglia project, specifically that the €560 million EUR in German government bonds used to guarantee the CDB may have never existed and were apparent forgeries. Suntech had discovered documentation "inconsistencies" for the bonds. Suntech accused GSF's outsider manager, Mr. Javier Romero, of possible fraud. Suntech had obtained the bonds from Romero's private firm GSF Capital Pte Ltd, which had borrowed the fictitious bonds from British company Werner Richter Investment Ltd.. Analysts struggled to understand why a European company would allow GSF Capital to borrow €560 million EUR in bond paper, since its asset base was less than 10% of the value of the bonds. The fictional nature of the bonds took Suntech two years to discover because the bond certificates had been deposited in a custodian bank, which Suntech decided to sell out of and its lawyers began checking its affairs. Outside lawyers stated that the fraud would have not survived basic due diligence at earlier stages. The disclosure of the possible fraud led to a crash of Suntech's market value (40% fall in a week). Suntech hired lawyers to investigate the fraud.}}. In December 2012, Suntech confirmed the bonds never existed. In 2009, CDB had invited Mandarin Capital Partners, a Chinese-Italian private equity firm that had previously worked with CDB, to co-invest in GSF, turned down the opportunity and advised CDB to not fund GSF's Italian projects since it assessed that they were too large to be viable (calling Italy a "solar bubble"), based on advice from an Italian renewable energy firm affiliate, Cleantech S.r.l., and that the project had an additional risk of criminal activity, as the Puglia renewable energy industry had a reputation for a major risk for fraudster activity, and the particular project mentioned the names of various important corporations, banks, and legal entities, a tactic often associated with fraudsters. CDB's ignorance of the advice and willingness to go forward with the loan was criticized by the media. Italy's solar market was, at the time, among the world's biggest and fastest growing, with Puglia and Sicily and other areas in southern Italy rich with sunlight and cheap land, but had a series of publicized corruption arrests and asset seizures, with fraudulent requests for quick approvals for projects and splitting single plants to get round procedures. Additionally, the GSF investee companies struggled to pay their bills to Suntech. The project was built when solar panel and inverters prices were more expensive than before, so the net equity Suntech had put in was worth very little. Due to the fictional bonds, Suntech was forced to restate past earnings and erased $60 million USD to $80 million USD of 2010 net income plus additional amounts in 2011 and the first quarter of 2012. Romero settled a lawsuit with Suntech over the bonds without admitting liability. The United States Securities and Exchange Commission (SEC) audited Suntech in relation to the alleged fraud, inquiring about Romero's past as a sales agent for Suntech, if he had helped its market share in Spain (Romero sold 76.4 MW of Suntech solar photovoltaic modules during the initial term of the agreement), how Suntech decided to invest in GSF (Romero pitched the concept and strategy on it to Suntech's managers), and why CDB requested a guarantee from Suntech of the debt, rather than from GSF (Suntech blamed the global liquidity crisis and that CDB wanted Chinese assets supporting the loans). In August 2012, a class action lawsuit was filed in the United States District Court, Northern District of California against Suntech, Shi Zhengrong, David King, and Amy Yi Zhang (the latter three being the chairman and chief executive officer, chief financial officer and director, and chief financial officer and director respectively) alleging that Suntech and its officers made false and/or misleading statements and failed to disclose key information (including the German government bonds) issue, causing the class members losses and damage as Suntech's stock collapsed. In January 2014, a consolidated second amended class action complaint against Suntech and Shi was filed. A settlement was agreed on August 14, 2015 and the United States District Court Northern District of California approved it on February 11, 2016. Furthermore, in December 2012, a public prosecutor in Brindisi, Italy accused some officers of GSF subsidiaries of violating local permit rules and building regulations for the solar plants. Romero worked with two Italian solar developers (who would later be implicated in an alleged tax fraud with a business associate of the Cosa Nostra (the Sicilian Mafia)) that would sell ready-mage packages of firms that held land and approvals to build solar plants, and GSF bought 27 Italian companies from these developers. Italian authorities seized 70 solar plants in Puglia, including 27 ones controlled by Suntech, after investigating the solar fields. In December 2011, Nicolangelo Ghizzardi, the criminal prosecutor in the province of Brindisi, filed court documents alleging fraud, criminal association and illegal diversion of public funds, accusing Romero, the two solar developers, and others of using network of Italian companies to conceal that they were taking over large amounts of land to develop a massive solar power field, making each seem as smaller operations to qualify for quicker environmental impact assessments, allowing GSF to get quicker access to government green-energy subsidies. The prosecution also alleged that Romero secured government incentives by falsely certifying that construction of a solar field had been completed when it was not. In total, it was accused the men working for GSF's Italian subsidiaries diverted €6.5 million EUR. It was called "the biggest solar energy fraud in Italian history" by prosecutors. In September 2013, criminal association was added to the charges, but because Romero was living in Shanghai, the arrest warrant was not served. In September 2013 the Court of Brindisi issued a ruling to seize 37 GSF solar parks, with a total capacity of 30 MW, and seizue of feed-in-tariffs from the investee companies of GSF that owned it, while several GSF-associated people were served with pre-trial detention orders.. As of 2014, only €3 million EUR of the alleged €6.5 million EUR in public funding had been recovered, with belief by prosecutors the remainder was offshore in various shell offshore companies. Suntech sued Romero in London and Singapore, accusing him of fraud and mismanagement, alleging he was behind the German bond fraud and that he had stolen €16.8 million EUR of money he was supposed to have paid on Suntech’s behalf to cover the annual commission on the bonds, with GSF Capital using as a wallet to fund an "extravagant lifestyle", while Romero claimed he was the primary victim. In March 2013, Suntech settled all disputes with GSF Capital and Romero. As of part of the settlement, GSF Capital sold its entire ownership interest in GSF to Suntech and the court orders obtained by Suntech against Romero would be discharged; there was no admission of liability for GSF Capital or Romero. Suntech once had a New York Stock Exchange listing and a market value of $16 billion USD as its peak and was one of the world's largest solar panel manufactures by capacity. However, the problems with GSF and other issues with the company gravely harmed its status. Suntech stock fell to $0.58 USD per share on April 15, 2013 from highs over $90 USD. Suntech had originally began to slide into insolvency in 2009 when customers associated with its founder did not pay their bills, but were booked sales as revenue anyway, with uncollected bills exceeding sales. In March 2013, Suntech defaulted on $541 million USD of its dollar-denominated bonds, while its largest subsidiary Wuxi Suntech Power Holdings went bankrupt and was to go undergo government-led restructuring. It was reported soon afterwards in April 2013 that Suntech was considering selling its 88.15% stake in GSF, which with some estimates saying the fund had an enterprise value of up to $800 million USD, including the debt from CDB, to reduce Suntech's debt of some $2.2 billion USD. However, selling GSF would not give Suntech enough to repay creditors without some debt restructuring with losses, conversion into equity stakes, or extended maturities. Suntech was also seeking to sell some assets and bring in a strategic investor to pay down its debt and reenergize the company. On March 4, 2013, Suntech's board of directors fired Shi Zhengrong, who was Suntech's chairman, chief executive officer, and founder; the Chinese government barred Shi and Suntech chief executive officer David King from leaving China as authorities investigated the company.