Executives at state-owned solar developer Panda Green have advised the board to pursue legal advice on how to recover RMB1,022 million (US$146 million) in missing deposits paid to secure the rights to solar parks which were never built, after KPMG found HK$12 million (US$1.55 million) ended up in the personal account of former CEO Alan Li.
The auditor, engaged by Panda Green to investigate the missing deposits, said Li and former chief financial officer Li Hong authorized the payment, between 2014 and 2017, of HK$598 million to entities connected to the New Energy Exchange Ltd (NEX) company which had big overlaps with Panda Green. The auditors found ex-CEO Li also authorized the payment, between June and October 2015, of HK$58 million to a NEX subsidiary, plus HK$30 million to China Merchants New Energy Group Limited.
All those payments, said KPMG, were made at the verbal instruction of Li, who was Panda Green CEO until June last year, and outside the group’s authorization procedures. The HK$686 million handed over to supposedly secure Panda Green future solar project development rights instead, said KMPG, “mainly found their ways to six channels, and most of the funds had been used to acquire [Panda Green shares] and approximately HK$12 million had been paid into Mr Alan Li’s personal account.”
SZZY and the RMB500m
The auditors also investigated the payment of RMB500 million by Panda Green in April 2017 for different supposed project development rights. Li Hong, Panda Green CFO until June last year, confirmed that payment was not used for the purpose intended and documents related to the agreements were drawn up after the fact, “for accounting purposes.”
Under that complex arrangement, Panda Green paid RMB500 million to Hangzhou Canhong Investment Management Limited Partnership and the money was handed on a month later – as a RMB485 million shareholder loan and RMB15 million equity investment – to SZZY, a limited partner of the Jiaxing Huaqiao Jiqian Investment Limited Partnership. Undated documents Li Hong confirmed were drawn up after the deals, stipulated SZZY should spend the cash acquiring project development rights. SZZY duly handed over RMB500 million to Jiaxing Huaqiao.
The transaction was connected to a HK$1.1 billion, three-year loan agreement which saw Sunshine Business Investments Limited borrow the funds from Speedy Worldwide Logistic Limited to spend acquiring 99% of Panda Green shareholder New Modern Management Limited. Jiaxing offered a guarantee in return for SZZY offering its stake in the Jiaxing partnership – now worth RMB500 million – as collateral. KMPG noted, SZZY’s legal representative at the time was also an employee of NEX. The auditors indicated former Panda Green CEO Li owned 11.05% of NEX in January last year, via his Magicgrand Group Ltd vehicle; had been chief executive of NEX from 2013 to September 2016; and staff from both companies shared the same floor of an office block in Shenzhen. When creditor Sunshine failed to repay the the money borrowed, Jiaxing assumed SZZY’s stake in its partnership.
The third strand of the investigation focused on the complex sale of 270 MW of Chinese solar capacity by Panda Green in September. KPMG found Panda Green subsidiary United Photovoltaics (Changzhou) Investment Group paid Wanxiang Trust RMB303.7 million in July and August last year on behalf of its solar project subsidiary company Changzhou Zhaolian Lvyi New Energy Limited (Lvyi) in exchange for the 31.45% stake Wanxiang held in Changzhou Ranchen Solar Investment Limited (Ranchen). Panda Green’s UP Changzhou then sold off two subsidiaries, including Lvyi, to NEX-related purchasers for RMB198.5 million in September.
The auditors noted Panda Green-owned subsidiary Changzhou Zhaolian Lvgang New Energy Limited, in October borrowed RMB450 million from Lvyi, which had by then become a NEX subsidiary.
A debt set-off arrangement agreed between four parties to the 270 MW project sale described above has left NEX and related companies owing Panda Green RMB36.2 million, according to KPMG.