Hanergy deputy chairman resigns, founder blames short sellers for stock collapse

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The extent and speed of the collapse of Hanergy Thin Film’s stock price surprised some observers of the Hong Kong Stock Exchange. However, serious questions regarding the company’s towering market capitalization previous to the collapse had been be raised by some analysts and journalists for months and even years leading up to the tumultuous day, May 20.

Hanergy founder and chairman Li Hejun has now come out in blaming short sellers for the fall by more than 50% of the share price, according to a transcript published by the Hong Kong based company. Around US$18.6 billion was wiped off the company’s stock price in one day of trading.

“The only big winner is short-sellers," said Li at the Hanergy anniversary event, in reporting from AP. "While I have enormous direct losses, the losses for shareholders, investors, institutions and employees make me even more sad and upset."

Li’s comments come at a time in which a number of Chinese companies have pointed the finger at short sellers after big falls in share prices on the Hong Kong Stock Exchange. Trading in Hanergy remains suspended by the Hong Kong Securities and Futures Commission (SFC) as the body carries out an investigation into Hanergy Thin Film lending, trading and sales practices.

Questions regarding the company’s value arose once it became clear that the vast majority of Hanergy Thin Film’s PV equipment sales were to parent company Hanergy. Li has explained away these concerns as being a “historic legacy” of the two companies’ structures.

It could well be the case that Hanergy Thin Film fell victim to short selling. Charles Yonts, the Head of Sustainable Research at CLSA, produced a number of notes questioning Hanergy Thin Film’s value and highlighting the practice of selling to its parent. Yonts said that after the publication of his 2014 Hanergy note entitled ‘Are They Really That Good?’ there was interest in his research from funds looking to short Hanergy.

“The entities that were most interested [in the report] were the hedge funds that had looked at Hanergy as a possible short candidate,” Yonts told pv magazine. “These funds either had short positions or were thinking about them.”

It does seem likely that a number of investors and funds took short positions in Hanergy Thin Film as an increasing number of analysts and news outlets began to questions the company’s fundamentals. Bloomberg New Energy Finance’s Jenny Chase followed Yonts’ lead and begun to question the company’s value and the number of newspapers investigating Hanergy increased rapidly, on the back of excellent reporting from the Financial Times.

However, the short sellers were attracted by Hanergy Thin Film’s skyrocketing share price in comparison to the limited amount of solar production equipment or modules that it was selling into the market. As became increasingly clear, neither Hanergy’s project business nor its direct module sales added up to its soaring market capitalization. Announcements such as plans for a 100% solar vehicle, parnterships with Aston Martin racing and the opening of retail outlets across China were effective at grabbing headlines, however they did not translate into actual sales and revenues.

While trading on Hanergy Thin Film’s shares remains suspended, there is little respite in sight for its shareholders for whom Chairman Li feels “sad and upset.”

“I am looking forward to actually finding out what on earth has been going on,” said Yonts. “The SFC is investigating but we don’t know how long it has been working on it. Now we can see the… disconnect between the fundamentals and the share price. It does sound like the findings would be a good read and a text book case of one sort or another.”

Hanergy Thin Film deputy chairman Liu Min cited “personal health reasons” for his resignation from the company board, announced today. Liu’s resignation is effective from October 1.

The July edition of pv magazine included extensive coverage of the Hanergy stock collapse, company history and charted the analyst and journalistic inquiries into the company.

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