Hong Kong Regulator Investigating Hanergy Thin Film Power

29 May 2015 | Author: | No comments yet »

Chinese billionaire cracked joke as his stock crashed.

Hanergy Thin Film Power Group Ltd., the Chinese solar maker under probe by Hong Kong regulators, rode a wave of government subsidies and support as it grew from a bit player into the world’s largest solar company by market value. But China’s one-time richest man Li Hejun showed a sense of humor when he broke his silence on the stock crash that nearly halved the value of his solar power company last week. Hanergy’s website features several pictures of Chairman Li Hejun meeting with government officials, and Li himself has been a member of the Chinese legislature’s top advisory body since 2008. In that role, he encouraged the government to cultivate innovative industries like his own. “This industry will be a bonanza that could generate more billionaires along with the government’s policy to promote a cleaner China,” Hu Xingdou, an economics professor at the Beijing Institute of Technology, said in a phone interview. “As the leadership presses to protect the environment and tackle smog, there could be more beneficial policies to draw people into the new energy industry.” Clean energy is one of seven industries that the National Development and Reform Commission dubbed key sectors for financing and growth in coming years. Li, who held over 80% of the company, appeared to lose as much as $15 billion, but it has since been revealed that he was betting the stock would fall.

A January report by the Financial Times said that the Hanergy Group made its fortune largely through unconventional sales between HTF, its listed subsidiary and itself. It came on a day when China’s markets fell sharply—Shanghai was down about 6.5%, while Shenzhen fell 5.5%—a reminder that Hanergy’s rise and fall has happened in a turbulent ocean of trading. Prior to its plunge, Hanergy Thin Film’s market value was at one point more than HK$300 billion (US$38.7 billion), but the fall in the share price would shave off HK$144.3 billion, Bloomberg said. Absolutely impossible, absolutely impossible.” It wasn’t clear when the Xinhua interview took place or when the Hong Kong agency launched its investigation.

Hong Kong’s Securities and Futures Commission said Thursday its investigation into Hanergy “has been active and is continuing,” adding it felt it had to comment given reports denying such measures had been taken. The company only said at the time trading would resume pending the release of “inside information.” Hong Kong trading rules require that stoppages be for the “shortest possible period.” That seems to be open to interpretation. The Export-Import Bank of China gave a standby letter of credit to an $82 million loan from 11 banks to Hanergy in December. “The government’s support of the photovoltaic industry shows they have faith in us, and that trust compels us to create a better way of life for people,” Li said in 2014. “The development of new industries will be impossible without the support of the government.” Hanergy’s website includes write-ups of Li’s meetings with Heilongjiang province’s governor, Li Zhanshu, who promised policy support. At its peak the company was valued at more than $45 billion — making it bigger than Sony — and paving the way for Li to climb up the ranks and become China’s wealthiest man. Normally, companies request suspension before trading opens, then provide the stock exchange with details that might affect their stock — like possible takeovers or additional fund raising — so trading can resume the same day.

A buying frenzy earlier this year set off by the Shanghai-Hong Kong Stock Connect allowing mainlanders to buy Hong Kong-listed shares has sent 37 companies soaring more than 100 percent, accounting for nearly a 10th of the companies in the Hang Seng Composite Index. As party secretary of Sichuan province, Liu said in 2011 Sichuan would “give more support to the new-energy sector with favorable policies and financing.” The investment arm of China’s foreign-exchange regulator, SAFE Investment Co., bought a stake worth billions of Hong Kong dollars in the company, people familiar with the matter said last month. Top performing stock Goldin Properties Holdings Ltd., whose shares had risen fivefold this year, dropped about 41 percent the day after Hanergy’s suspension, then jumped almost 43 percent two trading sessions later. Elsewhere, companies release announcements that they may be investigating a problem, leaving it to investors to speculate—and trade—on how bad the investigation will turn out. Li denying local media reports that Hanergy Holding had missed bank payments and that its factories weren’t running at capacity. “Hanergy has never been so good in our history,” he said to the interviewer on the Xinhua program, called “Truth.” A visit by a Wall Street Journal reporter this week to two large Hanergy manufacturing plants in the Yangtze Delta near Shanghai found busy plants with around 1,000 workers each that were hiring for their 24-hour shifts and, in one case, expanding the facilities.

Li has tirelessly championed his vision of a new era of mobile energy: thin, flexible solar cells. “Experience Centers” operated by Hanergy in Beijing to highlight the company’s technology display solar cells attached to products ranging from rain gear to backpacks. After they plunged, John Hempton, chief investment officer at Australian fund manager Bronte Capital, says he visited a Hanergy Holding production facility in the southern province of Guangdong six weeks before and saw little activity. “It was almost entirely silent,” he wrote in a blog post, which he later confirmed in an interview. Last July, out of concerns about manipulation, they proactively suspended trading in Cynk Technology, a penny stock that rose 36,000% in a month despite no revenue or assets.

In Hanergy’s case, not only short sellers, but also shareholders such as the Guggenheim Solar exchange-traded fund that has to exit Hanergy because of an index change, are trapped. Two days before the suspension, he increased his short position to 7.71 percent of Hanergy’s issued share capital, from 5.81 percent, which would leave his net position below the three-quarters threshold. He says that the company has never failed to pay back banks. “It never happened before, it won’t happen now and I believe it won’t happen in the future,” he said.

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