It's been another busy weekend for Chinese polysilicon manufacturer GCL Poly, with the announcement of a sweetened deal in its proposed stake acquisition in project developer Fengxian Huize on Saturday overshadowed by Friday's revelation its chief executive is the subject of an internal investigation.
Chairman and chief executive Zhu Gongshan and his son and company director Zhu Yufeng, are under investigation by a committee established by the GCL Poly board to see if they have broken non-competition agreements by holding interests in co-generation projects in China.
In an announcement to the Hong Kong Stock Exchange on Friday, GCL Poly revealed that in 2008, Yufeng had acquired the Jinshanqiao Cogeneration Plant in the Jinshanqiao Development Zone in Xuzhou province as well as a 9% stake in the Dongwu Cogeneration Plant in Suzhou, Jiangsu province.
Yufeng made the investments through two companies he controls and transferred them in May 2012 to the family trust through which he and his father control 32.42% of GCL Poly, with the company admitting this change of ownership had not been reported in last year's annual report.
A breach or not a breach?
On the face of it, such holdings breach the non-competition disclosure made by Gongshan and Yufeng on October 27, 2007 in preparation for GCL Poly's stock market listing and summarized in the listing prospectus four days later.
According to the prospectus, the pair had agreed not to hold or acquire any interest related to the construction, development, operation or management of power plants or the sale of electricity or heat in China or relating to the construction, development, operation or management of Chinese cogeneration plants, apart from those specified in the prospectus.
However the prospectus went on to outline a seemingly contradictory right of first refusal agreement by the pair, whereby they would be allowed to acquire investments in the restricted areas mentioned provided GCL Poly had first been offered the opportunity on the same terms.
Crucially, the prospectus stated, this right of first refusal requirement did not apply to cogeneration plants.
Chairman acquired two more cogen interests
The GCL committee will have to determine which of the non-competition agreements apply the original agreement or that outlined in the prospectus before they can determine whether Gongshan and Yufeng have breached commitments.
The investigation into the pair's interests was triggered by an enquiry from the Hong Kong exchange on August 22 and the course of GCL's enquiries also established the chief exec had agreed to participate in two further Chinese cogeneration projects, in Wuxi and Nanjing. GCL is now in the process of acquiring those interests.
It seems GCL needs to hire a good proof-reader after news of the non-competition-prospectus inconsistency was followed on Saturday by a correction to the details of the recent announcement of a delay in the acquisition of developer Fengxian Huize.
A ‘clerical error' resulted in a mistake in the reported list of shareholders of GCL Poly but the prospective purchasor was at least able to announce Fengxian had sweetened the deal by throwing in its Fengxian Zhonghui Ecological Agricultural Company Ltd subsidiary and that the deadline for completing the stake acquisition had been extended from Saturday until November 15.
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