When China Solar promoted two of the remaining three executive directors on its board not to have seen the inside of a Chinese jail to the posts of acting chairman and managing director at the start of December, Sun Yanfeng and Guo Lijie, respectively, could be forgiven for wondering what they were letting themselves in for.
Whilst Jin Yan must have breathed a sigh of relief to be passed over even if she did miss out on the HK$200,000 (US$25,800) and HK$150,000 monthly salaries offered her colleagues the scale of the problems facing what is left of the China Solar hierarchy, thanks to the company’s controversial subsidiaries in Changzhou and Dali, was again laid bare in Friday’s latest update to the Hong Kong Stock Exchange.
China Solar revealed on Friday it was unable to appeal the decision by the Chinese Industry and Commerce Bureau of Jiangsu Province to revoke the business licence of its Changzhou subsidiary because a legal representative had been detained, in a twist which will come as no surprise to regular viewers on this unfolding drama.
China Solar told the Hong Kong exchange it has appointed a legal advisor to request permission to conduct an administrative review and to carry out an administrative litigation against the decision to revoke its licence a decision carried out after the Changzhou unit failed to pass the annual review required by the Chinese authorities, for the last three years.
China Solar has also filed a defence against an attempt by the Jiangsu Changzhou Tianning Economic Development Zone Management Committee to have the Changzhou unit liquidated.
The applicant claims the Changzhou business is unable to repay loans of RMB16.5 million (US$2.7 million) the zone leant it from February to December 2007 to pay for licence and registration fees and construction costs associated with the establishment of the business, because of three legal cases against the company.
The Changzhou subsidiary is fighting the move by claiming there is no debtor-creditor relationship between the two bodies and the economic development zone, therefore, has no right to apply for a liquidation.
China Solar’s beleaguered Changzhou business is also resisting a Notice of Idling Land investigation initiated by the Chinese Municipal Bureau of Land, claiming the land belonging to it contains an unused 20,000m2 production plant as well as production facilities within its factory zone.
Chairman, son and non-exec director were arrested
The Bermuda-registered parent company’s problems emerged in October when it was revealed chairman Yeung Ngo, his son and China Solar director Yang Yuchun and non-executive director Hao Guojian had been detained by the authorities in Dali since August over the alleged misreporting of registered capital for the businesses in Dali and Changzhou.
Further allegations were revealed, and partially rebutted, by China Solar on December 20.
The parent told the Hong Kong exchange in an update, allegations Yeung had financed the subsidiaries by obtaining ‘massive’ loans from Chinese banks and public authorities, based on false representations, could not apply to the Changzhou business because it had not borrowed from banks and Chinese public bodies were not permitted to issue loans to private enterprises.
China Solar did admit, however, a legal representative of Yang’s unnamed spouse said the public authorities in Dali had loaned RMB100 million to the Dali subsidiary with the loan changed to a personal loan to Yeung and Yang in 2009 a claim which will be of interest to the many manufacturers around the world who claim the Chinese state subsidizes its solar industry in defiance of World Trade Organization rules.
The same legal representative claims the Dali business also benefited from a local authority subsidy, rather than loan, of a further RMB55 million.
China Solar insists it paid a reasonable price of HK$350 million to acquire the Changzhou and Dali units from Yeung, in a transaction which saw Yeung become it’s largest shareholder, with a 26.34% stake in the enlarged company.
China Solar says the purchase price was based on a 4% discount of the estimated HK$392.8 million value of the Changzhou business less the HK$27.8 million net liability of the remainder of the Target Group. The acquisition price does not bear out claims Yeung sold the units to China Power for an inflated price based on false representations, says China Solar.
Yeung accused of securing personal loans with business land
The parent company was unable, however, to fully reject a claim Yeung secured personal loans on the land owned by the Changzhou business, stating it was ‘suspected’, but not proven, the controller of the Jiangsu Zhunti Machinery Manufacturing Ltd business which borrowed two loans totalling more than RMB31.8 million from the Huaxia bank, and which were secured on the Changzhou subsidiary’s land assets, is Yeung’s unnamed spouse. The lender is reportedly seeking to seize the land in question after loan obligations were not met.
A miserable December 20 update from China Solar concluded by admitting the parent company’s board had only recently learned Yixing Jiangong had started legal proceedings against the Changzhou business in 2012 in relation to construction expenses of RMB11 million and that Miao Jian, as lender, had started a case ‘in or about’ last year against Yeung, his spouse and the Changzhou business as guarantor, over a loan worth RMB50 million.
With such a backdrop of alleged corruption, claim and counter-claim, it is entirely understandable Fan Chuan, an independent non-executive director of China Solar, today felt the need to clarify his decision to step down announced on Wednesday was due to "other business engagements which require more time for his dedication."
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