March 1, 2019 / 7:16 AM / 3 months ago

Breakingviews - Stricken Hanergy drops investors into black hole

A Hanergy Solar-R solar car is shown at China (Guangzhou) International Automobile Exhibition in Guangzhou, China November 18, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - Investors in the stricken solar giant Hanergy Thin Film Power, whose Hong Kong shares were suspended almost four years ago, have been offered a false hope. A company proposal on Tuesday looks at first glance like a creative way to evade near-certain delisting. Shareholders can swap untradeable Hanergy stock for stakes in a special purpose vehicle, intended to facilitate a new listing in China. That could give backers a chance to recover at least part of their investment. Unfortunately that’s highly unlikely.

Shareholders have little negotiating leverage. They can’t sell their holdings until the troubled company satisfies the Securities and Exchange Commission’s requirements for trading resumption, which looks unlikely. So they face the possibility their shares will be ejected from the board this summer. If they vote down the SPV, investors will be up a creek.

Winning Beijing’s approval to list in Shanghai or Shenzhen is a very long shot. Hanergy is a famous mess. Trade was halted in 2015 after the company lost about half its market value in less than an hour, and it’s been under investigation by Hong Kong’s Securities and Futures Commission over conflicts of interest and other concerns. Former chairman, Li Hejun, was disqualified from being a director or involvement in the management of any listed or unlisted company in Hong Kong for eight years - yet he controls Hanergy Mobile Energy, described as the offeror in this latest proposal.

To add insult to injury, Hanergy does not claim to be broke. Unaudited interim results show it earned HK$7.3 billion ($930 million) in the six months ending in June 2018. It has over HK$500 million in net cash according to Breakingviews calculations, equivalent to over HK$13 per share. The company last traded at HK$3.9. Instead of distributing any of this bounty, Hanergy proposes to hand out paper likely to prove worthless.

It’s tempting to dismiss the dilemma as a company-specific aberration. In fact there are around 70 other firms whose shares were suspended or facing delisting in Hong Kong, the exchange reported in February. They may be watching closely to see what Li pulls off.  

- This item has been corrected in the penultimate paragraph from “around HK$3” to HK$3.9.

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