Talking Point

Here comes the sun king

Is Hanergy’s Li Hejun really China’s richest man?

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His day in the sun: Hanergy’s Li Hejun is reputedly worth $26 billion

In the 2009 novel The Curse of Forbes, the protagonist describes the likely fate of those who find themselves on the magazine’s list of Chinese billionaires. “If you get onto it, you’ll be dead meat in no time,” is the warning. In 2012 three Chinese academics came up with similar conclusions in their research paper The Price of Being a Billionaire in China, which found that members of the Hurun rich list – a competitor to the rankings from Forbes – saw the market values of their firms dip significantly within three years of being mentioned.

Becoming a billionaire can also generate unwanted attention from the authorities, which is why so many business bosses prefer to steer clear of the publicity (and why the rankings are known colloquially as “pig-killing lists” – see WiC16).

Nevertheless the wealth tables have become a staple topic for the media, stirring controversy and debate. This month Hurun compiled its latest ranking. But interestingly, the newly-crowned richest man doesn’t seem too concerned by the new spotlight on his success. And rather than dodging the publicity, he even seems to be chasing it.

Who is China’s richest man?

Because competing compilers produce different rankings, the title has already changed hands three times this year.

Just like heavyweight boxing, it’s hard to crown an undisputed champion. In late January Forbes reported that the tycoon behind property giant Dalian Wanda, Wang Jianlin, had surpassed Jack Ma as China’s richest man (following a 9% dive in Alibaba’s stock after a disappointing results announcement).

However, Bloomberg reinstated Ma just a few days later. It reasoned that Alipay, a payment system controlled by Ma, is considering a private placement (and a full listing in 2016) that could significantly boost his worth.

Last week a new name was tossed into the ring. Hurun’s latest rich list suggests that Li Hejun, the chairman of energy conglomerate Hanergy Holding, is now China’s richest person with an estimated net worth of $26 billion. According to Hurun’s calculations, Wanda’s Wang ranked second with assets of $25 billion and Ma is third with $24.5 billion.

Hanergy began life as a hydropower firm in 1994, when Li invested in a project on a river in Guangdong where he had swum in his youth.

Later it branched out into wind farms before making another switch into solar, opening a series of plants producing thin-film solar panels.

Helped by favourable financing from China Development Bank and friendly relations with local governments, Hanergy was soon billing itself as the largest private enterprise in China’s clean energy sector (see WiC154 for our first profile of the company). By 2013, Li had taken control of 10 hydro-electric dams, 18 solar plants and two wind power sites (see WiC214).

A case of ‘get rich quick’?

Li’s wealth has skyrocketed over the last year – Hurun’s list for 2013 estimated that he was worth about $2 billion that year and ranked him 83rd nationwide. Since then his fortune has surged more than tenfold. The main driver is Hanergy’s 75% stake in its Hong Kong-listed unit Hanergy Thin Film Power (HTF), which runs the bulk of Li’s solar business. Li chairs Hanergy – the parent firm – which is unlisted and controls the group’s other alternative energy operations. But the financial action has been at its most frenzied at HTF in Hong Kong. In 2014 its share price surged 255% and the unit’s market value has climbed 63% further so far this year.

As of Thursday, HTF’s market capitalisation stood at HK$190 billion ($24 billion). Assuming that Li owns a majority stake in Hanergy, his effective holding in HTF is now worth at least $17 billion.

After two years of breakneck earnings growth, HTF’s net profit jumped from HK$719 million in 2011 to HK$2 billion in 2013. But investors seem to be expecting even better results: HTF is currently trading on a hefty 77 times price-to-earnings ratio.

Such a performance is pretty much unmatched in the industry. As the South China Morning Post noted this week, HTF’s value exceeds the combined market caps of 11 of its main rivals. These include heavyweights with strong backing themselves, such as GCL Poly (see WiC141).

Equally impressive is that HTF’s rally has run counter to the performance of rivals like Shunfeng (which bought Suntech’s huge solar panel business), which have seen their share prices head south in conjunction with the falling oil price.

Does Li’s stellar rise convince?

Not exactly, which is why his new title as the country’s richest man has been a little controversial.

Plenty of analysts are warning that Hanergy’s story is too good to be true. Mainland media have been questioning HTF’s reliance on its parent firm to buy its products for at least two years. And after HTF’s spectacular spurt in market value, it has begun to solicit interest from international media too.

“A little-known Hong Kong-listed firm is now the world’s largest solar-power company by market value. A tight relationship with its parent company suggests its time in the sun may not last,” the Wall Street Journal warned in its Heard on the Street column on January 6. How could HTF enjoy profit margins as high as 54%, the Journal wondered, referencing margins of less than 9% at American photovoltaic manufacturer First Solar?

These profits must be “mostly on paper”, it concluded, adding that HTF’s parent (and biggest customer) is perennially late in paying for its orders.

A remarkable thing about HTF is its apparent immunity from less-than-positive media coverage – indeed, the Wall Street Journal article did little to dampen its market value. Then on January 28, following another spike in HTF’s share price, the Financial Times weighed in on the solar group, running a full-page investigative report. Again it warned of the “unconventional practices behind HTF’s soaring fortune” and highlighted that nearly all of HTF’s HK$14.8 billion in revenues since 2010 have come from sales of equipment to its parent, Hanergy.

According to HTF’s 2013 annual report, only 35% of these contracts had been settled, with the balance held as receivables.

Citing a study from another investment analyst, the FT raised questions about the production data too. Where were all these panels ending up, for instance? If Hanergy is producing at close to full capacity, its panel output would be enough to saturate a small European country.

Yet “nary a Hanergy panel has been seen in the wild,” the analyst noted wryly.

Li addresses his doubters

After the FT’s feature, HTF put out a statement via the Hong Kong stock exchange. It didn’t deny that the company has yet to reduce its reliance on its parent firm as a customer. However, it reiterated that any connected transactions with Hanergy have been properly disclosed and comply with Hong Kong listing rules. Most of the contract revenue from these dealings, HTF stressed, has been “due and paid”.

“The company has recently expanded its downstream photovoltaic power generation business and would continue to expand our customer base and diversify our source of revenue,” it said.

HTF share price performance was unruffled by the speculation. Since the beginning of February its stockhas gained another 25%.

Li has been accused of providing inaccurate business data in the past. In 2012 the National Audit Office said that one of his solar factories falsified its capacity so as to obtain a government subsidy. Hanergy returned the money in the same year.

But Li has stepped up the charm offensive himself this year, taking on media interviews to commemorate his new top position on Hurun’s rich list.

“Being the richest man means nothing to me… I can’t bring my money with me when I go into a coffin,” he told the Global Times. “The highest goal in my life is to help others and contribute more to the country… My secret formula for getting rich is to dream big.”

Appearing on CNBC, he also hit back at his critics. Speaking in English and occasionally explaining himself in Chinese, Li dismissed the allegations directed at HTF. “There are a lot of people who don’t understand Hanergy or thin-film solar,” he explained. “The biggest advantage of thin-film solar is the mobility. I could, for instance, use it on my car.”

HTF secured its thin-film technology from foreign acquisitions in Germany and the US. However, Hanergy hasn’t disclosed the technology’s cost per watt, which is a major indicator of solar energy companies’ performance. Critics have also claimed that – even if HTF can raise the conversion efficiency of solar cell technology – the costs to make the panels will still be high.

In the meantime, Li is joining the growing list of tycoons with an interest in making electric cars. Smartphone maker Xiaomi and internet video firm LeTV are both said to be interested in manufacturing them (see WiC268) and now Hanergy has entered the fray, declaring its ambition to launch a “totally solar-powered car” that will go into commercial production in October.

In April last year Hanergy said it would partner with Tesla to build an electric vehicle charging network, completing solar carports in Beijing and Shanghai using the company’s MiaSole panels.

Now it says that it will be working with five vehicle designers – all yet to be identified – in developing up to five new models. The aim is to produce cars capable of travelling 100 kilometres on four hours of charge time in the sun, it said. Power will come from six square metres of thin-film cells plastered over the vehicles’ bodies.

Solar powered cars are part of Li’s dramatic vision for mobile energy, in which people harness the sun’s energy more easily with flexible, light weight panels across applications like cars, mobile phones and wearable devices. Freed from the limitations of more cumbersome traditional panels, which are usually located in industrial settings, Hanergy hopes to cash in on demand from a massive new universe of customers.

Investors who buy into that dream are backing HTF’s shares, it seems.

Is anyone short-selling?

Given HTF’s stock surge since 2014, short-sellers will be staring at staggering losses. In a response to the Financial Times, HTF’s chief executive Frank Dai brushed off concerns that hedge funds were shorting its shares. But according to Chinese newspaper reports, the recent rally in HTF’s share price has been partly driven by short-sellers desperate to square off their positions.

China Securities Journal, a financial daily run by Xinhua, is one of the proponents of this theory. Citing unidentified sources, it said that an American firm headed by a prominent ex-Wall Street banker has been shorting HTF since the beginning of 2013. It has accumulated a huge short position of about 1.2 billion shares which it is now trying to unwind. “The squaring up of this position is igniting a chain reaction, forcing other short-sellers to snap up HTF shares, which in turn could trigger further share price increases,” the newspaper thought.

The National Business Daily followed up with a more detailed report, suggesting that the firm in question is facing losses of $2 billion. “It is similar to the short squeezing episode that occurred with Volkswagen,” the newspaper claimed, referring to the tumultuous trading in VW shares in 2008, when hedge funds were badly burned after Porsche revealed that it had cornered the market in the shares of the German carmaker.

And back to those rich lists…

Even if he is riding high today, Li isn’t likely to top the Hurun poll for long, the Global Times has noted. Tenure at the top is tenuous in China, with the newspaper highlighting that Li is the 12th person to head Hurun’s rich list in the past 16 years. In comparison, Bill Gates and Warren Buffett have been the mainstays of American wealth leagues over the same period. The same is true of Hong Kong, where the same property tycoons have topped the rankings for decades.

“Depending on how you read the rich lists, one can say the richest Chinese tycoons could fall from grace at any time. On the other hand these changes over the years also suggest that, unlike in developed economies like the US, many people do at least still have the chance to make it to the top,” Sina Finance concluded.


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