China’s richest man has been loading up on high interest shadow banking loans — and selling off a private jet — to fuel the rapid growth of the most valuable solar company in the world.

A Financial Times investigation has found that Hanergy Group, run by founder Li Hejun, has borrowed billions of renminbi from high-interest Chinese “trust products” marketed to wealthy individuals, and loans secured through pledging shares in its Hong Kong-listed subsidiary.

This month the company obtained a HK$412.5m loan (US$53m) by selling and leasing back one of Mr Li’s Gulfstream jets to a small Hong Kong lender whose other main asset is a bulk cargo ship. 

Revelations about Hanergy’s borrowing arrangements, pieced together from company filings and fundraising documents, follow a period of huge gains for shares of its $23.7bn Hong-Kong listed subsidiary, Hanergy Thin Film Power Group. 

Since the start of 2013 HTF shares have risen 1,200 per cent compared with a 17 per cent rise by the Hang Seng index over the same period. As of a January disclosure, Mr Li held a net position of 74.93 per cent of the company.

The rapid rise in value of the listed unit shares has pushed Mr Li to the status of China’s richest man, overtaking Alibaba founder Jack Ma, according to the Hurun global rich list.

Hanergy Group has snapped up overseas developers of thin film solar technology, amid promises to make thin film solar competitive by producing it at scale. This month, the company announced it would launch solar powered cars in 2015.

Hanergy’s ambitious plans require financing, and it has secured lines of credit from traditional banks as well as shadow banking channels. The company is building or operating at least nine factories in China, and is in the process of constructing a hydropower dam in Myanmar.

Over the past two years Hanergy Group has raised at least Rmb3.5bn through a number of trust products, lightly regulated savings products predominantly sold to wealthy retail investors, issued by at least four different companies.

The products offer annual interest rates of between 7.5 per cent and 10.5 per cent — so the cost to Hanergy is an estimated 8.5-11.5 per cent when taking into account typical fees that trust companies charge borrowers. Many are guaranteed by Mr Li.

Hanergy’s cost of financing has climbed even as average interest rates have fallen for many private Chinese borrowers, who turned to trust products in droves when bank lending tightened in 2010.

“By and large, when you look at trust borrowers you are normally talking about companies who don’t have access to bank financing, or don’t have sufficient access,” says Jason Bedford, director of Asian financials research at UBS in Hong Kong and an expert in Chinese trust products.

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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