Troubled Hanergy’s Debt Web Snags State Banks to Shadow Lenders

Troubled Hanergy’s Debt Web Snags State Banks to Shadow Lenders

June 2, 2015 — 11:14 AM SGT

One of the many mysteries behind the share price collapse of the solar panel maker controlled by Li Hejun is this: Which of the Chinese billionaire’s many creditors risk losing every yuan they put into his company?A plethora of Chinese lenders are exposed to Hanergy Thin Film Power Group Ltd. and its parent company, including Industrial and Commercial Bank of China, which is owed tens of millions of dollars. On May 20, 47 percent of Hanergy Thin Film’s market value vanished in minutes and it’s now under probe by the Hong Kong Securities & Futures Commission.

Creditors are nervous: A group of 11 lenders have asked for a meeting to voice their concerns and discuss their $82 million loan, say people familiar with the matter.

“The interesting thing with Hanergy is that so much is happening with the parent company that investors know nothing about,” said Charles Yonts, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “The opacity about parent finances and billings is extraordinary.”

A Bloomberg examination of debt held by Hanergy Thin Film and its closely held parent, Hanergy Holding Group Ltd., show Li has tapped a variety of financing sources since the Hong Kong unit’s stock started surging last year. They include policy-bank lending, short-term loans from online lenders with interest rates of more than 10 percent and partnerships with local governments.

Hanergy’s Lenders

Lenders also include China Everbright Bank, China Minsheng Bank, two of the companies set up to manage Chinese banks’ bad assets; and Harvest Fund Management Co., one of the country’s biggest fund managers with assets of more than $55 billion.

Hanergy’s lenders either declined to discuss their loans or didn’t return phone calls and faxes from Bloomberg News. One lender, the online microfinance site Itouzi, issued a statement on its website May 21 saying the stock plunge hadn’t affected Hanergy Group’s ability to pay off its loan.

Hanergy Group has given no public accounting of all its debt or the debt scattered among its units. In its 2014 full-year results, Hanergy Thin Film reported debt of 4.4 billion yuan ($710 million).

Hanergy Thin Film and its parent have secured loans despite long-time concern about its finances. Thin Film got 62 percent of its sales from its parent in 2014, according to its earnings report. It classified 28 percent of current assets as receivables from the parent — assets owed but so far undelivered.

Best Shape

A Hanergy spokesman declined to answer questions about the company’s debts. But Li says Hanergy has never been better.

“Hanergy is in its best shape since it started,” Li told the Xinhua News Agency in an interview published May 28.

Among the 11 banks behind the $82 million loan is ICBC Asia, the Hong Kong unit of ICBC. That’s only part of the bank’s involvement: ICBC has lent Hanergy units at least 400 million yuan in loans, according to people familiar with the matter who asked not to be identified because ICBC hasn’t publicly disclosed the information.

Export-Import Bank of China offered a standby letter of credit for the 11-bank loan. Separately, China Development Bank extended a 30 billion yuan line of credit to Hanergy in 2011, according to the official Xinhua News Agency.

Pledged Capital

Local governments have also provided money. Hanergy entered separate financing deals with governments in Sichuan, Shandong and Hebei. In at least three cases, Hanergy or its units pledged the entire registered capital of projects to China Huarong Asset Management Co. and China Orient Asset Management Co., two of the firms China created 16 years ago to handle bad loans from the nation’s largest lenders. They’ve since taken on other business as well.

In March, a Huarong subsidiary extended 270 million yuan in loans maturing in 2018 to a Hanergy unit in Jiangsu province, with inventory as collateral, according to a March 27 filing to local authorities. The same Hanergy unit has another 100 million yuan loan from China Everbright Bank that matures in July, according to another filing.

A Huarong press release features pictures of Li and Huarong’s chairman, Lai Xiaomin. Last week, Huarong denied a Financial Times report that it lent Hanergy $200 millionbacked by shares. Asked about the other lending, a Huarong spokesman referred a reporter to its previous denial.

Trust Companies

Hanergy pledged ownership stakes in a hydropower station in southern China to four trust companies, a guarantee company and a subsidiary of Harvest Fund Management in exchange for credit. It also guaranteed more than 100 million yuan in loans from online microfinancer Itouzi, and took 18.5 million yuan in loans from another microfinancer, Jimubox, according to the two lenders’ websites. On May 30, Itouzi started raising funds for a 10 million yuan loan guaranteed by Hanergy; demand was 30 percent as of Monday.

In a statement Monday, Jimubox spokesman Wang Yichao said the company did its due diligence and has an “irrevocable guarantee” for its loans. Itouzi declined to comment.

Then there’s the case of Baota Petrochemical Group Co. In March, Hanergy said it planned to issue as many as 3 billion shares to Baota to cement a relationship after Baota bought production line equipment from a Hanergy Group subsidiary for $396 million. In a Hong Kong exchange filing, Hanergy said Baota is “independent of and not connected with the company.”

Jinzhou Loan

There is one indirect link: Baota is the second-biggest shareholder in a Liaoning-based bank, Bank of Jinzhou. According to documents seen by Bloomberg, Jinzhou has sold wealth management products that invested in Hanergy’s debt.

A Jinzhou bank spokesman declined to comment on the link, saying the bank had already referred the matter to Chinese regulators. A Baota media officer who refused to give his name said Jinzhou issued the products before Baota became a shareholder and Baota had no link to Hanergy.

Li, who holds a 73 percent stake in Hanergy Thin Film, has also used shares as collateral to secure loans. In its 2013 annual report, Hanergy said it pledged 5.1 billion shares to four financial companies.

“Hanergy Group was basically using the listed company as a means to produce collateral in the form of shares that it could then pledge to secure financing,” said Francis Lun, chief executive officer of Geo Securities Ltd. in Hong Kong.

Amid the growing doubt about Hanergy’s finances, banks have sought to protect themselves by asking Li to guarantee loans personally, according to a person involved in one loan deal with the company. The person, who asked not to be identified because he wasn’t authorized to speak publicly, said he felt Hanergy was too risky to lend more than a small amount.

That precaution accords with a financing deal Hanergy signed with China Minsheng Trust Co. for 150 million yuan in 2014, backed by a stake in its Jinanqiao hydropower dam. According to a document seen by Bloomberg News, the ultimate guarantor of that loan was Li Hejun himself.

Hanergy Bids Show Record Discount in U.S. After Hong Kong Halt

byBilly ChanKana Nishizawa
June 1, 2015

Hanergy Thin Film Power Group Ltd., the Chinese solar maker under probe by Hong Kong regulators, fell to a record discount in bidding on U.S. over-the-counter markets, a sign the company’s halted Hong Kong shares are poised to drop.

The U.S.-traded securities sank 38 percent last week to 28 cents on Friday, equivalent to about HK$2.17, according to bids and offers tracked by Bloomberg. As the attached chart shows, that’s 45 percent less than the last trade in Hong Kong at HK$3.91. The gap widened to a record 50 percent on Thursday.

Hanergy’s Hong Kong shares tumbled 47 percent on May 20 before trading was suspended, erasing about $19 billion of market value and ending a more than six-fold surge over the previous 12 months. The rout has increased scrutiny of the company controlled by Chairman Li Hejun amid questions over its production levels, borrowings and technology.

“It shows that some investors might be so worried they want to get rid of the stock,” Castor Pang, an analyst at Core-Pacific Yamaichi in Hong Kong. “As the securities regulators have stepped in, it’s likely the suspension will drag on” in Hong Kong, he said.

Bids and offers on Hanergy shares in the OTC market may serve as a reference point for Hong Kong investors once the local shares resume trading, said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. Two calls to the mobile phone of T.L. Chow, Hanergy’s external spokesman, weren’t answered.

The lower bids for U.S. shares “send a negative signal to investors as no one is trying to buy,” Sam said. “There’s big uncertainty about the company and investors want to avoid further risk.”

Hanergy’s Solar-Technology Gamble Is Under Scrutiny

Stock plunge puts spotlight on company’s chairman and his big bet on solar power

Hanergy factories, such as this one in Chengdu, Sichuan province, are busy 24 hours a day, according to workers, despite the recent regulatory scrutiny and stock-trading halt. PHOTO: REUTERS


May 29, 2015 7:19 p.m. ET

BEIJING—When one of China’s richest men ventured into the solar business about six years ago, he bet heavily on the success of niche solar technology that few in the industry even wanted.

Today, that gamble by Li Hejun, chairman of Hanergy Holding Group Ltd., is under unprecedented scrutiny.

Shares in Hanergy’s listed unit, Hanergy Thin Film Power Group Ltd., tumbled roughly 50% in just moments last weekafter surging nearly sevenfold over the past year.

On paper, Mr. Li lost $14 billion in a matter of minutes. Hong Kong securities regulators said Thursday that they are investigating the unit, and its shares have been halted from trading indefinitely.

It isn’t clear what caused the stock moves, which have been amplified by new ways for mainland Chinese investors to make bets in the Hong Kong market. But the listed unit’s stock-market crash has put Mr. Li and his big bet on niche solar technology under a spotlight.

The crash also renewed scrutiny over the relationship between Hanergy Thin Film and its parent company, which has been Hanergy Thin Film’s biggest customer in recent years—while also selling solar panels back to its unit. Moreover, company records show panels manufactured by Hanergy have been slow to reach the market. The companies have developed complicated and interwoven business models, in which each is reliant on the other for success.

Hanergy said Mr. Li wasn’t available for an interview and declined to comment for this article. Mr. Li told the official Xinhua News Agency in a video released Wednesday that Hanergy is operating normally and disputed local media reports that it has fallen behind on debt payments. He also labeled as rumor a media report that Hong Kong authorities were probing the listed unit. Hanergy has declined to comment since Hong Kong regulators confirmed they were in fact probing the listed unit.

Mr. Li, who was born in China’s southern Guangdong province in 1967, is famous in China for his focus on renewable energy. In a book he wrote last year, Mr. Li said solar power was the wave of the future.

“Thanks to the ’fairness’ of the sun, international conflicts will no longer take the form of energy wars, but of technological competition,” he wrote.

Hanergy spent heavily to purchase equipment from its listed unit to make solar modules. The unit, Hanergy Thin Film, says Hanergy Holding and its affiliates accounted for 62% of its sales last year.

Additionally, under agreements with its parent company, Hanergy Thin Film agreed to buy solar panels manufactured by its parent for installation around China. Relatively few of those panels have come through. Delays have added to questions of whether the parent company can fulfill its huge solar promises. Also, industry experts say, Hanergy’s reliance on its listed units for panel sales could be a sign it is struggling to win business with others.

The listed company said in its 2014 annual report that its parent had returned to it more than $160 million in prepayments due to delays in fulfilling 2013 supply contracts. The contracts subsequently were canceled. In 2014, the parent delivered about 30 megawatts of contracted solar panels to the listed unit, leaving nearly 700 megawatts worth of panels undelivered, Hanergy Thin Film said.

It isn’t clear where else the parent company might sell its panels beyond its listed unit. Hanergy makes a type of solar technology known as thin film, a catchall term for a range of technologies produced by depositing layers of special material on a surface such as glass. Such panels are more flexible than traditional solar panels, but can also be more expensive.

Citi Research analyst Timothy Lam said in a report last month that despite its potential, thin-film technology in many cases delivers worse returns than rival technologies due to higher thin-film costs. As a result, adoption of thin-film solar as a percentage of the total solar market remained stable at only about 10% in recent years, according to Citi.

On its website, Hanergy Holding said it has some three gigawatts in total solar-panel production capacity at manufacturing bases across China. That would be more than the 2.5 gigawatts in capacity reported by Yingli Solar, the world’s second-biggest panel producer as measured by shipments.

Nonetheless, industry analysts say the company didn’t rank among leading solar-panel producers last year. One industry website, U.K.-based PV-Tech, estimated that actual capacity in production of Hanergy, combined with that of several companies it has acquired in recent years, is below 500 megawatts.

“Hanergy actually has very little manufacturing capacity actually in production,” said Mark Osborne, senior news editor at the website, which tracks data for global panel shipments.

Workers at two Hanergy manufacturing facilities in China visited by The Wall Street Journal described busy operations running 24 hours a day.

Truck traffic appeared light, though some workers said trucks sometimes come at odds hours. “Why does the stock have anything to do with us?,” said a worker at a dormitory for Hanergy employees in Jiangsu province, who said his night shift doing technical work remains as busy as ever.

At another factory, in Zhejiang province, job seekers sat outside looking for steady work. They were attracted by fliers distributed by recruiters this week that said of Hanergy, “the company is headquartered in Beijing and the chairman is China’s richest man, Li Hejun.”

Hanergy leaped to the limelight in China’s non-state-owned clean energy industry after investing 20 billion yuan (about $3.3 billion at current exchange rates) more than a decade ago to build Jin’anqiao, in China’s Yunnan province, which has a capacity of six gigawatts. Mr. Li has said publicly that Hanergy’s hydropower projects produce about $1 billion a year in cash flow.

“For hydropower stations, as soon as you set them up, they are like banknote printing machines, working Saturday, Sunday, every day,” he said in 2014, according to reports picked up by official media.

In recent years, Hanergy has used those funds to back loans it took out from nonbank Chinese lenders called trusts to fund its solar expansion. The full extent of the borrowing couldn’t be determined, though filings show Hanergy Holding borrowed at least several billion yuan from China’s trusts in recent years. Lending from trusts typically carries higher rates than traditional bank loans.

In one recent case, China Minsheng Trust Co. lent Hanergy 200 million yuan in October, promising some investors in the trust returns of 10.5%, according to a filing. The debt is due to be repaid by 2016. Minsheng Trust declined to comment.

In another case, from 2013, Hanergy took a loan of about 685 million yuan from Sichuan Trust Co., pledging interest in revenue from Jin’anqiao as collateral. This has been paid back, according to information from China data provider Wind Information Co., quoting Sichuan Trust. Some investors in the trust were told they would receive annual returns of 10% to 10.5%, according to a filing. Sichuan Trust declined to comment.

China’s richest man might have been running a massive fraud

By Matt O’Brien May 27

The only thing we know for sure is that stock in Hanergy Thin Film Power, a solar panel company equipment owned by what was at the time China’s richest man, fell 47 percent last Wednesday. We don’t know exactly why it fell, or even how much its Chairman Li Hejun lost when it did, since he apparently upped his bet against his own company in the days before the crash. Just that it did.

When you put all the pieces together, though, it looks even worse. It looks like Hanergy might be China’s Enron: an Energy Company of the Future™ whose stock price could only go up as long as it was borrowing money and could only borrow money as long as its stock price was going up. In other words, a house of cards that was just waiting for the first piece to fall.

Now, the first thing to know about Hanergy is that it’s really two companies. There’s the privately owned parent corporation, Hanergy Group, and the publicly traded subsidiary, Hanergy Thin Film Power (HFT). So far, so normal. The curious part, though, is that almost all of HFT’s sales are to its parent company at a net profit margin of 50 percent. And even more curious is that the parent company hasn’t actually, well, paid for most of the solar panel equipment it’s ostensibly bought from HFT. Through 2013, only 35 percent of the accounts between the two had been settled.

Why so low? The question answers itself. Hanergy must not have the cash. The problem is that the parent company has borrowed a lot of money at high interest rates, but can’t make that back since its factories, which, remember, are supposed to be building solar panels out of the equipment it’s gotten from HFT, are running at such low capacity—or maybe none at all, according to a hedge fund manager who visited a plant—that they must be losing money. So it sure seems like Hanergy Group has more debt than it can pay back, but is trying to keep people from realizing that by moving money from its left hand to its right and back again—that is, between its parent and subsidiary—to make it look like there’s actually money coming in.

The question, then, isn’t how this fell apart. It’s how it lasted as long as it did. And the answer is HFT’s stock. Think about it like this. How does a company that’s got too much debt and too little profits—if any—convince people to keep lending to it? Well, it could try to hide what it owes and what it’s making, but even that probably wouldn’t be enough. It’d need collateral. Like, say, its subsidiary’s booming stock. Although in this case, the word “booming” doesn’t come close to describing what happened. Before its recent plunge, HFT’s stock had risen more than 20-fold since the start of 2013 on its supposedly brisk business with its parent company. But even then, this made approximately zero sense. It wasn’t just that HFT went up so much that, on paper, it was worth more than six times as much as its closest competitor. It was the way it went up—specifically, in the last 10 minutes of every day.

It turns out there are two HFT stocks. There’s the money-losing one most of the day, and the invincible one at the end of it. By the Financial Times’calculation, if you’d bought $1,000 worth of HFT stock at 9 a.m. every morning and sold it at 3:30 p.m. every afternoon since January 2013, you’d have only had $635 left by this February. But if you’d sold at 3:50 p.m. instead, your stock would have gone up to a healthy to $1,285. And if you’d held on until closing at 4 p.m., your stock would have shot up a more-than-healthy eight times to $8,430.

That’s some pattern. And it’s one that isn’t likely to have happened by chance. It sure seems like—there are those words again—HFT’s stock must have been getting manipulated up at the end of every trading day. But who could have been doing this? Well, there aren’t too many suspects. That’s because Hanergy’s Chairman, Li Hejun, is not only the person with the strongest motive to do so, but he’s also about the only one who seems to have been buying HFT’s stock in the first place. Indeed, while hedge funds have been so eager to bet against HFT that it’s hard to find shares to short, Hejun has increased his holdings up to the legal limit. He now owns 74.96 percent of HFT against the 75 percent he’s allowed to own.

Here’s one theory about what happened. Suppose that Hanergy wasn’t making enough money to pay back what it owed other than by borrowing from new lenders to pay off the old. And then suppose it got these new loans by pledging its subsidiary HFT’s shares as collateral. (We actually know it did this). It’d need those shares to keep going up if it was going to keep getting the loans it needed—so it’d use what money it did have to push the stock price higher and higher. But there’s only so much it could do this. Once Hejun hit the 75 percent limit on how much of the company he could own, he couldn’t push up its price anymore. Then Hanergy wouldn’t be able to borrow anymore, and, as a result, wouldn’t be able to pay back what it owes anymore. It’d default, and its lenders would sell the HFT shares being held as collateral to try to recoup their losses—which, the Financial Times reports, is exactly what happened.

Again, this is just speculation. It’s trying to fit what we know into a story that makes sense. But if it were true, we might expect Hejun to start betting against his company once he realized it was all going to come crashing down. And that seems to be what he did. Hejun increased his short position against HFT from 5.81 to 7.71 percent right before its stock halved. It’s certainly curious.

It might just be Enron with Chinese characteristics.


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