Hanergy Thin Film shareholders must accept privatization share swap or be left with dead stock

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Shareholders barred since May 2015 from trading their stock in Hong Kong-listed Chinese solar manufacturer Hanergy Thin Film have been presented with something of a fait accompli when it comes to the choice of what to do about a proposed privatization.

Parent company Hanergy Mobile Energy Holding Group in October announced a plan offering “privatization to all investors that possess stocks of the listed company, [the] offering price is no less than HK$5 (US$0.64)per share, with cash purchase or stock replacement”, with the aim of relisting the unit on China’s A-share stock exchange.

However, Hanergy Thin Film stockholders were wary. They had seen trading in the shares suspended after a huge intra-unit trading wheeze between the company and other parts of the Hanergy group was exposed as the reason for the Thin Film unit’s roaring stock price.

Landed with stock they were unable to trade, the premium apparently represented by the HK$5 offer prize should have seemed tempting. But the Hanergy Thin Film board noted – as did pv magazine – stock market documents relating to the proposed privatization did not specify how much of the estimated HK$54.9 billion would be comprised of cash and how much would relate to the stated “stock replacement”.

Show me the money

As a result, the board asked for further details and also asked the parent company to explain where the cash element of the deal would come from.

Today they received their answer as the Hong Kong Securities and Futures Commission approved a privatization plan that will, in fact, not involve any cash element. Neither will it involve a simple share swap into a new A-share index-listed company, because the proportion of non-Chinese stockholders at the thin film business mean the chances of a listing in China would be virtually non-existent.

Beleaguered Hanergy Thin Film shareholders have instead been offered the choice of taking up shares, on a one-for-one basis, in a special purpose vehicle formed to itself take up a stake in another Hanergy business unit with enough Chinese shareholders to get around the A-share requirements. Then, through a process that involves numerous diagrams and utterly confusing contortions that will surely send shivers down the spine of stockholders already burnt by the 2015 revelations, they will apparently be left holding stock in a newly-formed, A-share listed business in the PRC.

Provided, as Hanergy Thin Film’s update today pointed out, the new company actually achieves A-share listing. The update also warns the Hanergy parent company will be unable to state at what point shareholders who sign up will be able to trade their new shares or at what value.

This of course, is not quite how the transaction is explained in a joint press statement released by Hanergy Thin Film and parent Hanergy Mobile Energy Holding Group today to announce the privatization plan.

Dead stock option

Amid talk of returning the business to China, where it will be better aligned with the nation’s ambitious climate change strategy, the PR states: “The old shareholders would have the opportunity to trade their stocks in mainland China once the new company is listed, and accrue cash profit.”

What happens if Thin Film shareholders vote down the proposal was not made clear in the press release, but the associated stock market update was pretty unequivocal and explained it is highly unlikely the business could resume trading before the end of July, when it would exit the Hong Kong exchange under listing rules.

At that point, says the document: “The independent shareholders will find it extremely hard to dispose of the shares or realize any value in the shares in lack of a stock exchange or a public trading platform for the shares.”