Hanergy’s Li taps shadow lenders to fund group’s stellar startling growth
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Hanergy did not provide responses when requested to comment for this article.
Reforms in the banking sector have allowed many private borrowers to access traditional bank loans again, at interest rates of about 7-8 per cent, compared with rates well into the double digits a few years ago, Mr Bedford said.
Most of Hanergy’s borrowing through trust products, according to company financial documents, is tied to its Jinanqiao hydroelectric dam in China’s Yunnan Province, which has been the cash cow that has enabled Mr Li’s bold foray into thin film solar technology.
The FT recently detailed unusual business practices at Hanergy’s listed unit — including that close to 100 per cent of revenues were from sales made to its parent, Hanergy Group. The FT also reported a high level of unsettled bills from the parent company.
After the FT report, HTF said in a stock exchange filing that its parent had settled its remaining receivables. At a February 2 press event at the group’s Beijing headquarters, Mr Li told state broadcaster CCTV that “foreign media don’t understand Hanergy.”
Company executives told the FT that Hanergy Group’s mainland factories were not fully ramped up yet, although “output was gradually rising.” Output from the plants is still below the scale needed to make panels profitably, according to HTF chief executive Frank Dai Mingfang. Hanergy has started to develop customers outside its own solar farms.
In a separate interview with CNBC this month Mr Li said: “We have a steady cash flow from the hydropower stations. Every year we can get $1bn net cash flow.”
Yet fundraising documents seen by the FT prompt the question of whether revenue from the dam is entirely unencumbered. Its final stage of construction in 2010 was financed by a large three-year, Rmb2.1bn trust product at 8.1 per cent annual interest issued by China Credit Trust, one of the nation’s largest trust companies.
The collateral for these loans was the rights to revenues from the soon-to-be completed Jinanqiao dam. Trust products issued since have often pledged shares in the Jinanqiao dam as collateral, or the rights to revenues from the dam. Local corporate registry information shows Jinanqiao shares have been pledged to fifteen different financing institutions, chief among them Minsheng Trust and Sichuan Trust, both of which have issued trust products for Hanergy.
Companies that raise money through trust products often collateralise assets at deep discounts to their true value, raising the risk for the borrower.
Hanergy is also advertising on microfinance websites to raise funds at high interest rates. These include three- and four-month duration Hanergy investment products raising Rmb10m each at annual interest rates of 10-11 per cent on iTouzi, a lending site set up to facilitate funding for financial guarantee institutions.
On another microfinance site, Jimu Box, retail investment products raising about Rmb20m in funds for leasing solar equipment come with a guarantee from Hanergy.
Corporate registrations show the end borrower, a new energy leasing group in Tianjin, is controlled by Hanergy Holding America, Hanergy Group’s US subsidiary.
Hanergy’s reliance on trust products for financing comes despite its apparent ease of access to traditional bank loans. At the beginning of 2014, it signed a three-year, Rmb20bn ($2.57bn) credit line with Minsheng Bank and the Asia Financial Cooperation Association, a regional bank association. Hanergy said at the time this was to “ease pressure on Hanergy’s cash flow as it continues to expand its businesses in the photovoltaic and hydropower sectors”.
In 2011, China Development Bank extended to Hanergy a five-year, Rmb30bn line of credit. CDB holds one of the largest blocks of pledged Jinanqiao shares.
However, state-owned banks remain cautious about sectors with significant overcapacity. The collapse in oil prices and the 2013 bankruptcy of solar panel manufacturer Suntech has made them more cautious about the solar sector, even though clean energy and technology development are still priorities for Beijing.
Mr Li has used debt to buy up shares of Hanergy’s Hong Kong-listed subsidiary whose shares have risen so spectacularly.
In late 2013, the listed company HTF announced that Mr Li had pledged as collateral 5bn of his 17bn shares to four financial institutions in exchange for a loan of HK$520m. The company said HK$345m of the loan was used to buy up HTF shares.
In a company filing this January, Mr Li was recorded to have 80.75 per cent of the company as well as a “short” position of 5.82 per cent.
The most unusual case of Hanergy’s hunger for financing is this month’s deal involving a private jet, the same week that Mr Li topped the ranks of China’s richest.
On February 5, Hanergy sold a Gulfstream G550 jet to a small listed Hong Kong company called Noble Century Investment in a sale and leaseback agreement for HK$412.5m, according to a stock market filing by Noble Century.
Noble Century, whose other main asset is a bulk cargo ship, will lease back the jet to Mr Li for a total consideration of HK$538m, in a deal which in effect equates to a loan at an annual interest rate of about 9 per cent, according to FT calculations.
Additional reporting by Owen Guo
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