Hanergy Thin Film Says It Can’t Produce Documents for Regulatory Probe; Company says the documents are outside its control
Updated July 16, 2015 12:46 p.m. ET
HONG KONG—A Chinese solar-equipment manufacturer being probed by Hong Kong’s securities regulators said Thursday it was unable to hand over documents requested and that it may take legal action against an order that prevents the company from resuming trading in its shares.
Hanergy Thin Film Power Group Ltd., which is under investigation by Hong Kong’s Securities and Futures Commission, issued a statement saying it couldn’t provide financial details of its parent company and billionaire owner Li Hejun to investigators. Mr. Li is the chairman and majority shareholder of both the parent, Hanergy Holding Group Ltd., and the listed unit.Hanergy Thin Film had been one of the best performers on the Hong Kong Stock Exchange this year, as the company’s market capitalization grew bigger than that of SonyCorp. and at one point made Mr. Li the richest man in China. However, trading was halted at its own request in May after its value plunged 47% in one day. Soon after, the SFC said the listed company was the target of a regulatory probe.
The SFC on Wednesday directed Hanergy Thin Film––which has been the subject of intense scrutiny by analysts and short sellers who questioned its high valuation––to keep trading of its shares suspended. The regulator’s move impacted some of the world’s largest fund managers, including Vanguard Group and BlackRock Inc., which owned billions of dollars’ worth of shares in Hanergy as of the end of June, according to data from FactSet.
The SFC couldn’t immediately be reached for comment by phone or email outside of office hours.
Hanergy Thin Film said Thursday that it suspected the share-price plunge in May was due to speculation that one of its customers wouldn’t proceed with a major sales contract. As of Thursday, it said it had confirmation from two of three major customers that their sales contracts would proceed, the company said in statement to the Hong Kong Stock Exchange.
The company said it received a letter in June from the SFC asking for financial details related to Hanergy Holding Group and Mr. Li. Although Mr. Li heads and controls both companies, Hanergy Thin Film said it had no control over its parent or Mr. Li, and couldn’t compel them to produce the information.
The listed unit sells most of its solar-panel-making equipment to its parent, whose factories use them to make panels. It said it has proposed terminating all connected transactions with Hanergy Holding Group to satisfy the SFC’s investigation.
However, Hanergy Thin Film said the SFC considered the company’s explanations and proposals to be inadequate. The directive to suspend trading of its shares was “unfair and unreasonable” and “not in the interest of shareholders,” the company said.
While business is operating normally, some customers, suppliers and employees have “made enquires” and are “uncooperative” as a result of the continued suspension, the statement said.
Hanergy Thin Film said the documents it has been asked to produce to the SFC include the audited consolidated financial statements of its parent company for every year between 2011 and 2014 and information about Mr. Li’s outstanding loans.
Hanergy Thin Film’s revenues soared nearly threefold in 2014 to $9.6 billion Hong Kong dollars (about $1.24 billion) from 2013, though it had few buyers for its manufacturing equipment outside its parent company, which was often slow to pay, regulatory filings show. Money yet to be paid by customers stood at HK$9.75 billion at the end of 2014, according to the most-recent filings available.
Unlike most Chinese solar-panel makers, Hanergy’s products are based on a technology called “thin film” that has the potential for lightness and flexibility. But thin film, which is less efficient than more-common panels based on crystalline silicon, hasn’t caught on, and most of the solar panels Hanergy makes aren’t efficient enough to compete in most markets.
July 16, 2015 5:25 pm
Hanergy Thin Film threatens HK regulator with legal action
Lucy Hornby in Beijing and Cynthia O’Murchu in London
Hanergy Thin Film Power, the solar equipment supplier being investigated by Hong Kong’s Securities and Futures Commission, on Thursday threatened to take legal action against the financial regulator.
Hong Kong-listed HTF said it would challenge this week’s decision by the SFC to formally suspend trading in its shares.
HTF’s meteoric rise from an unknown small company to a solar giant has raised suspicions because of its revenue almost entirely coming from sales to Hanergy Group, its mainland parent. HTF is controlled by Chinese solar entrepreneur Li Hejun, founder of the Hanergy Group and one of China’s richest men.
HTF’s shares have not traded since May 20, when $19bn was wiped off the company’s market capitalisation. Trading was suspended at the company’s request on that day.
The formal suspension of trading in HTF’s shares on Wednesday by the SFC ended the company’s ability to decide the timing of a resumption of buying and selling of its stock.
“If necessary, the company intends to challenge the SFC’s decision judicially,” HTF said in a statement to the Hong Kong stock exchange on Thursday. It is rare for Hong Kong-listed companies to challenge the regulator in court.
HTF said the SFC had required it to provide audited financial statements for Hanergy Group. It had also asked for detailed terms of Mr Li’s outstanding loans, added HTF.
The SFC did not consider that the company’s response addressed its concerns, said HTF.
Hanergy Group makes thin film solar panels, using equipment supplied by HTF.
In January, the FT highlighted how the majority of HTF’s sales, made at a net profit margin of more than 50 per cent, were to Hanergy Group.
The FT has also looked into unusual trading patterns in HTF’s shares since the beginning of 2013 through to February this year.
In May, the FT reported that Mr Li took a US$200m loan pledging millions of shares in HTF as collateral, just two days before its share price plunge.
Separately, HTF said on Thursday that it had asked three firms that earlier this year agreed to buy equipment and services in return for shares and cash whether they were in a position to complete the deals.
Baota Petrochemical Group, a private refiner and petrochemicals firm based in the desert region of Ningxia, had not confirmed it would proceed with its $1.3bn agreement, HTF added.
HTF said Macrolink, a Shandong-based property developer, and Inner Mongolia Manshi Investment Group, which produces chemicals, had confirmed they would proceed with their deals, worth $660m each.
Hong Kong Regulator Orders Suspension of All Hanergy Trading
July 15, 2015 — 11:34 AM SGTUpdated on July 15, 2015 — 6:43 PM SGT
Hong Kong’s stock watchdog took the rare step of saying trading in Hanergy Thin Film Power Group Ltd. shares can’t resume without its approval, raising the prospect they’ll remain suspended for the foreseeable future.
The Securities & Futures Commission’s suspension falls under a rule allowing it to call for a halt when it believes that misleading, false or incomplete information has been included in documents and statements. Regulators were already investigating Hong Kong-listed Hanergy, which hasn’t traded since it requested a halt on May 20 after its shares lost almost half their value in less than half an hour.
“It’s pretty unusual, I have never come across a case like this before” said Eric Seto, a partner at Morley, Chow, Seto Solicitors, who has worked on criminal SFC prosecution cases. “I think this is just the first step in what will become a criminal prosecution.”
FTSE said on its website Wednesday that it was dropping Hanergy from its FTSE China 50 Index and other indexes effective July 20 because of the suspension.
Liu Yanjun, a public relations manager at Hanergy Thin Film’s Beijing-based parent, Hanergy Holding Group Ltd., declined to comment on the order by the regulator.
Hanergy originally asked for a trading suspension after a 24 minute, 47 percent price plunge wiped $19 billion from its market value. A week later, the SFC took the unusual step of announcing it had been investigating the company after Hanergy Chairman Li Hejun told the media there was no probe. SFC investigations are normally veiled in secrecy.
Seto said that if the company is found guilty of providing misleading information to the SFC it could be fined a maximum of HK$1 million ($130,000) and Li could face a possible two-year prison sentence.
SFC spokesman Ernest Kong declined to comment.
In the handful of other cases where the SFC has ordered share suspensions, the consequences have been serious.
In March 2010, it ordered a halt of Hontex International Holdings Co., which was eventually delisted after the regulator accused it of misleading investors in its listing prospectus.
In December 2013 shares in Qunxing Paper Holdings Co. were halted by the SFC, which subsequently froze the company’s assets. The shares remain suspended.
For Hanergy, although Hong Kong stock exchange trading remains suspended, at least 4.9 billion of shares have changed hands over the counter since May 20. According to July 14 reporting by the Central Clearing and Settlement System, Standard Chartered Bank (Hong Kong) Limited. sold more than 3 million shares, while JP Morgan Chase Bank, National, acquired 12.5 million shares.
Guggenheim Partners LLC confirmed earlier this month that it had found a buyer for its exchange traded funds’ holdings in Hanergy.