No mention of Hanergy share swap proposal in AGM notice

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The agenda for the next annual general meeting to be held by Hanergy Thin Film Power Group Ltd, issued this morning, makes no mention of the “privatization” proposed by the board last year that would be required for Hanergy’s thin film unit to move from its Hong Kong listing to China’s A-share index.

Parent company Hanergy Mobile Energy Holding Group in October announced a plan for a “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 exchange.

Hanergy Thin Film shareholders have been saddled with dead stock since May 2015, when trading in the shares was suspended following a calamitous plunge in value after details emerged of inter-unit trading at the group which had inflated the value of the business.

In October, the directors of the parent company offered Hanergy Thin Film shareholders the chance to cash in a proportion of their holdings and transfer the balance into a special purpose vehicle (SPV) – a separate unit of the Hanergy group with enough Chinese shareholders to get around limitations on the number of non-Chinese investors with an interest in businesses listed on the Chinese exchange.

Privatization or share swap?

If approved, the board members said, stock in the SPV would eventually be transferred onto the Chinese exchange – provided a listing could be secured – where it could be traded again.

The convoluted “privatization” proposal is up against a tight deadline, with Hanergy Thin Film due to lose its Hong Kong listing in July, under exchange rules related to the lengthy period trading in the stock has been suspended.

Although trailed as a “privatization”, when the Thin Film unit’s board asked for details of what proportion of share value would be realized in cash, and where the money would come from, Hanergy Mobile Energy Holding Group revealed no cash would be involved and the deal would be entirely constituted by a share swap. In effect, shareholders could agree to the deal and have a chance of realizing some value in their investment or be left with a worthless holding in July.

Today’s AGM notice has no mention of the plan. Instead, it proposes giving Hanergy Thin Film directors – four of whom are up for re-election – the power to issue new stock and, interestingly, to repurchase up to 20% of the currently issued 42.14 billion shares.

Majority stake

The notice mentions four times that the board has no intention of repurchasing the whole 4.21 billion share block it would be entitled to, and adds that in light of Hanergy Thin Film’s latest annual report such an exercise “might have a material adverse impact on the working capital or gearing position of the company”. That is an interesting detail given the 2018 figures outlined net profits that had skyrocketed, year on year, from HK$261 million to HK$5.19 billion.

Notice of the annual meeting, which the Hong Kong-listed business unit is due to hold in Beijing on June 12, also spelled out details of the 59.3% majority stake held by Li Hejun and associates including his brother Li Weijun and sister Li Xue. If the Hanergy Thin Film board were to exercise its full shares repurchase option, noted the announcement, that stake would rise to 65.89%.