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What happened at Hanergy on Wednesday?

Hanergy Thin Film Power, the world’s biggest solar company by market capitalisation, has suffered a major reversal of fortunes. Its share price has surged almost 600 per cent in the past two years, but on Wednesday the stock dived.

HTF’s Hong Kong-listed shares plunged 47 per cent, from HK$7.01 to HK$3.88, in just 24 minutes. This knocked HK$130.1bn (US$16.7bn) off the company’s market capitalisation, and therefore produced a big paper loss for Hanergy group chairman and founder Li Hejun. He is the controlling shareholder in both Hanergy group and its subsidiary HTF, and is one of China’s richest people.

HTF’s Hong Kong-listed shares are now suspended from trading, at the request of the company.

What triggered this stock fall?

It is hard to say for certain at this stage. HTF held an annual meeting with shareholders in Hong Kong on Wednesday but Mr Li, who owns a net 74.96 per cent of the stock according to regulatory filings, did not attend.

Hanergy said Mr Li was at the opening of the Hanergy clean energy expo centre in Beijing. The company provided this picture.

Why is the stock decline important?

HTF is not just the world’s biggest solar company by market capitalisation — its value before the fall was greater than Tesla or Twitter.

The sudden share price plunge is likely to raise questions about the corporate governance and regulation of large Chinese companies that are increasingly doing business and raising funds outside of China.

The Beijing-based Hanergy group announced in 2011 that Mr Li had secured a controlling stake in a Hong Kong-listed company now known as HTF.

HTF was also one of the most prominent beneficiaries of something called the Shanghai-Hong Kong Stock Connect — a scheme launched last November that, for the first time, allows mainland Chinese investors to trade shares outside of China using their local brokers. This has been a key step in the opening up of China’s capital markets.

What else do we know about Hanergy?

For the past five months, The Financial Times has been examining HTF’s dramatic share price rise, and the business model behind Hanergy group. The group manufactures so-called thin film solar panels, using equipment supplied by HTF.

In January, the FT raised questions about how the majority of HTF’s sales — made at a net profit margin of more than 50 per cent — were to Hanergy group.

At the same time Hanergy group has delayed paying HTF for the large amounts of equipment it supplied, meaning the Hong Kong-listed company built up large accounts receivable balances, while generating relatively small amounts of cash from its core business.

While HTF has sold large amounts of solar equipment to Hanergy group’s factories in China, those plants themselves are still in a ramp up stage and are producing well below their capacity.

In an interview with the FT in January, Frank Dai Mingfang, HTF chief executive, said the mainland manufacturing bases were operating at very low levels, but that gradually production would increase.

“At this stage, they have to be losing money,” Mr Dai said about the factories at the time. “But by the end there will be no problem.”

Mr Dai also acknowledged concerns about HTF’s reliance on sales to Hanergy group, saying: “Our client at the moment is our main shareholder. That is the point that makes other people suspicious.”

Hanergy group, meanwhile, has borrowed billions of renminbi in high-interest Chinese shadow banking loans.

In February, the group obtained a HK$412.5m loan (US$53m) by selling and leasing back a Gulfstream jet to a small Hong Kong lender whose other main asset is a bulk cargo ship.

The FT has also looked into unusual trading patterns in HTF’s shares since the beginning of 2013 through to February this year. The FT found that HTF’s share price consistently surged in the last 10 minutes before the close of trading.

What happens now?

Everyone is waiting for HTF to make an announcement — until it comes, the shares are expected to remain suspended.

The Securities and Futures Commission, Hong Kong’s markets regulator, has recently been probing trading in HTF shares, sending written requests for information and meeting investment groups and brokers who have bought and sold stock in the company, according to people familiar with the matter. The regulator declined to comment.

Among those watching with particular interest will be investors in renewable energy exchange traded funds. For example, the US-based Guggenheim Solar ETF has invested 12 per cent of its $464m fund in HTF shares.

Copyright The Financial Times Limited 2017. All rights reserved.
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