Solar firm Hanergy is bringing its profits down to earth after related-party transactions (RPTs) stop. But the next step—getting paid by its parent—comes with strings attached. Hanergy’s parent appears to be asking for a ransom to release payments contractually due to its listed unit.

Hanergy’s High Demands for Rehabilitation; Solar firm Hanergy is bringing its profits down to earth, but the next step comes with strings attached



Aug. 17, 2015 7:45 a.m. ET

Under regulatory pressure, Hanergy Thin Film Power is bringing down its lofty reported profits. But this once-wunderkind of the solar world may also be trying to pressure regulators into helping it merge with or buy assets from its parent. More than two months after its Hong Kong shares crashed and were suspended, Hanergy warned over the weekend that it could report a loss for the first half of the year. That is hardly surprising.The industry-beating near-50% net-profit margins that Hanergy averaged the past two years were possible only because the maker of solar-panel equipment reported selling almost all its production to its unlisted parent at high prices, though the parent rarely paid it on time. Listed Hanergy racked up receivables equal to 101% of annual revenue as of December. It admitted last month that the Securities and Futures Commission, the Hong Kong stock-market regulator that is investigating the company, is concerned about these related-party transactions.

The company began dialing back these dealings in June. This weekend, it took the next step by announcing it was terminating most of the transactions, squeezing sales and profits in the process.

Hanergy’s valuation, at nearly 80 times trailing earnings at its peak, was too high even if investors trusted the quality of its reported profits. But at least its income statement now should raise fewer eyebrows. Hanergy is even talking about getting those overdue payments from its parent, along with compensation for canceled deals.

Yet there is a catch.

For the past month, Hanergy has been fighting an SFC order to suspend trading in its shares, even threatening to sue the regulator. More seriously, it says it has proposed a separate restructuring plan to the SFC to address the related-party issue. Hanergy hasn’t given any details of its plan, but the simplest reorganization would be for the listed company to buy out the parent.

Listed Hanergy says that unless regulators approve its reorganization plan, its parent cannot and will not pay the receivables, or compensate it for canceled transactions. That suggests the parent cannot settle the payments owed unless the listed firm buys at least some assets from the parent, says good-governance activist David Webb. This certainly gels with the evidence that Hanergy’s founder has often mortgaged his listed unit’s shares, suggesting he is short on cash.

In essence, Hanergy’s parent appears to be asking for a ransom to release payments contractually due to its listed unit. After months of this saga, that would mark another mockery of Hong Kong’s stock market.

Hanergy Thin Film Says It Might Post First-Half Loss

Chinese solar-equipment maker cites canceled deals with parent company


Aug. 16, 2015 10:35 a.m. ET

HONG KONG—A Chinese solar-equipment manufacturer at the center of a Hong Kong regulatory probe warned Sunday that it might swing to a first-half net loss this year after it canceled billions of dollars in deals with its parent company.

Hanergy Thin Film Power Group Ltd. said in a filing to the Hong Kong stock exchange that its income from connected transactions is expected to decline to 200 million Hong Kong dollars (US$25.8 million) for the first half ended in June, off 90% from a year earlier. The company said that it incurred costs because of the cancellations, which included a US$586 million contract to provide equipment and services to its parent company, Beijing-based Hanergy Holding Group Ltd.

Hanergy Thin Film didn’t project the size of any loss. It posted a net profit of HK$1.73 billion for the first half of 2014.

The Hong Kong-listed subsidiary sells most of its gear to its parent, whose Chinese factories use the equipment to make solar panels. For its 2014 financial year, 62% of Hanergy Thin Film’s sales came via dealings with its parent. Hanergy Holding Group, meanwhile, sells some of its solar panels to the subsidiary.

Hanergy Thin Film suspended trading of its shares at its own request on May 20 after its stock price plunged 47% in a matter of minutes. Soon after, the Hong Kong Securities and Futures Commission said the company was under investigation as part of an unspecified probe.

The SFC later ordered Hanergy Thin Film to keep its shares suspended. In so doing, the commission invoked stock-market listing rules that allow the regulator to halt trading if it appears that a company provided materially false, incomplete or misleading information.

In response, Hanergy Thin Film said it proposed to the SFC that it end all transactions with its parent to satisfy the investigation. Hanergy Thin Film has said that the extended suspension is “unfair and unreasonable.” It later canceled a deal to buy as much as HK$50.51 billion in solar panels from its parent company over three years.

The shares remain suspended.

Hanergy Thin Film said Sunday that, as part of its unwinding of its connected transactions, its parent would compensate the Hong Kong-listed unit for money it still owes its subsidiary, including “compensations as a result of the cancellation of orders.” However, Hanergy Thin Film said the proposal still needs to be approved by “the relevant regulatory authority.”

Hanergy Thin Film added that the parent would bear any interest or penalties from a delay in payment.

Hanergy Thin Film said it would publish interim results at the end of August. The unit said its business is “still functioning normally” and that its financial condition is “sound.”

The Hong Kong unit’s revenue soared nearly threefold to HK$9.6 billion in 2014 from 2013. Money yet to be paid by customers stood at HK$9.75 billion at the end of 2014, according to the most recent regulatory filings available.

The subsidiary’s products are based on so-called thin-film technology, which has the potential for lightness and flexibility. Thin film, which is less efficient than more-common panels based on crystalline silicon, hasn’t caught on widely.

Write to Wayne Ma at


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