Energy & Resources

Setting sun

Hanergy receives fresh blow from Swedish giant

Li Hejun

Li: won’t be shopping at IKEA now

Louis XIV of France, or the Sun King as he styled himself, holds the record as Europe’s longest reigning monarch (72 years, 110 days, in case you wondered). He was also one of its most extravagant. Testament to his lavish spending is the magnificent Palace of Versailles and its famed Hall of Mirrors.

Li Hejun, the chairman of the solar panel manufacturer Hanergy, has also been referrred to as the Sun King. But in Li’s case his reign as China’s richest man (displacing Jack Ma) was short lived. On May 20 this year the stock price on which his riches were based collapsed 47% in the space of 30 minutes. Trading in Hanergy shares has been suspended ever since.

The complicated financials of the group have often seemed like a distorted hall of mirrors too – especially for the analysts now trying to unpick them. Hong Kong’s Securities and Futures Commission (SFC), is on the case too. It is investigating related transactions between the unlisted parent company, Hanergy Holdings, which manufactures and sells solar panels using equipment purchased from its listed entity, with Hanergy Thin Film Power Group. These enabled the latter to record net profit margins of up to 50%.

Like many an absolute monarch, Li didn’t react well to the impudence of the SFC’s investigations. First he denied that an investigation even existed. Then, when the SFC publicly set him straight, the Hong Kong-listed entity said it was unable to compel its parent or its chairman to hand over documents and that “if necessary” it would challenge the SFC’s decision in court.

More recently Li has adopted a more emollient tone. In an article to mark the company’s 21st anniversary in late September, he admitted Hanergy had expanded too fast and suffered from “big enterprise disease”. Shortly before this, the Wall Street Journal said Hanergy had submitted a restructuring plan to the SFC. Analysts suggest this involves the listed company buying assets from the parent, or absorbing it completely.

Hanergy maintains that it still hasn’t received a convincing reason for its trading suspension. Back in the summer it said the suspension would lead to a loss of confidence among its international business partners, who might “suspend or terminate co-operation agreements”. And so it has come to pass. Last week IKEA said it would not renew an agreement with Hanergy to sell residential rooftop solar kits at the Swedish group’s stores in the UK, Switzerland and the Netherlands. The deal was important for Hanergy as it demonstrated sales to external customers (last year 62% of the subsidiary’s revenues came from purchases by Hanergy Holdings).

One unnamed Hanergy executive told Economic Information Daily the IKEA termination relates to the UK government’s decision to scrap solar subsidies, which makes Hanergy’s pricing uncompetitive. But there was more bad news a few days later when a company called Macrolink announced that it was pushing back the completion of an agreement to buy a strategic stake in Hanergy to April 2016. Beijing Business Today says Macrolink hasn’t given a reason for the delay. However, one analyst says it is a face-saving measure to avoid cancelling the HK$5.46 billion ($704 million) agreement outright at a time when Hanergy doesn’t want more bad publicity. Macrolink doesn’t want to ‘drop a stone on a man who has fallen down a well’, the analyst told the newspaper, deploying a popular Chinese proverb.

Minus a (positive) resolution of the SFC’s investigation and further corporate restructuring, Hanergy doesn’t look likely to return to its former profitability. In the meantime Li Hejun is trying to keep the company’s spirits up. Louis XIV believed he ruled with divine right, while Li once told Bloomberg he believes that “when you are doing something with a sense of mission then God or heaven will empower you with magic and you can get everything right”. While Hanergy may still be waiting for signs of celestial approval, it settled recently for the next best thing: a kind word from Premier Li Keqiang. A meeting between the two Li’s at a Beijing trade fair was broadcast on TV in late October. “Well done, wishing you success,” the politician was said to have told the businessman.

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