Short sellers are sitting on potential losses of more than $300m in a little-known Chinese solar company whose stock has soared in spite of their heavy bets to the contrary.

Shares in Hong Kong-listed Hanergy Thin Film Power Group have more than doubled in the past six months, giving the distributor of solar equipment a market capitalisation of almost $15bn — almost as much as the three biggest US solar companies combined.

But several Hong Kong brokers report that hedge funds are still clamouring to borrow the stock, to short sell it: selling borrowed shares in the market in the hope their price will fall, so they can be bought back more cheaply and returned to their original owner. By doing this, short sellers can profit from falling prices — in effect, betting against the company’s shareholders — but lose when prices rise.

Bankers said the price for borrowing stock is at levels typically only seen when short selling attacks are launched publicly, as was the case with Tianhe Chemical and Olam. These two companies — a chemicals group that floated in Hong Kong last year and a Singapore-listed agribusiness trader — hit the headlines in 2014 and 2012 respectively after being attacked publicly by short sellers.

Tianhe’s shares are 46 per cent below their pre-attack level, in spite of a strong rebuttal of its critics’ claims. Olam, which also rejected the criticism and was supported by one of its biggest shareholders and has since changed strategy, is 19 per cent higher.

Unlike Tianhe and Olam, Hanergy has not been subject to a sharply critical public report. However, a note published by CLSA, the Asia-based brokerage, in December questioned the six-month rise in Hanergy’s share price when the company’s fundamentals had not changed significantly. David Webb, a corporate governance activist in Hong Kong, has also highlighted the listed unit’s reliance on sales to its mainland parent.

Hanergy declined to comment on the short selling and analyst concerns.

Gains in the Hanergy share price have led one hedge fund not involved in the short selling to warn that the trade could be “Asia’s Volkswagen” — a reference to the notorious 2008 “short squeeze” when the German carmaker’s stock doubled overnight after Porsche revealed it had used derivatives to take control. That news forced hedge funds to rush to cover short positions from a suddenly far smaller pool of available shares.

About 73 per cent of the Hong Kong-listed unit’s shares are controlled by Hanergy’s founder, Li Hejun, who is China’s fifth richest man, according to Forbes. More than 90 per cent of Hanergy shares that are available to borrow — about 4 per cent of the total issued shares, according to Markit, the data provider — have been on loan for most of the past year.

Between the end of August and Wednesday’s market close, Hanergy’s shares had risen from HK$1.27 to HK$2.74 ($0.35). While data for individual short seller positions are not available, assuming all short positions were taken at the beginning of that period, multiplying the average number of shares on loan by the HK$1.47 price rise suggests the short sellers, collectively, would have built up a paper loss of just over $300m.

Alternatively, had the short sellers collectively placed their bets just two months ago, they would still be nursing losses of more than $200m.

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