Updated: Li Hejun majority shareholder in PV thin-film equipment and module producer Hanergy Thin Film Power Group (Hanergy TF), via parent company Hanergy Holding Group is set to be banned from being a director, directly or indirectly in the any corporation for a certain period in Hong Kong.
The Securities and Futures Commission of Hong Kong (SFC) was said to have started civil proceedings to ban Li Hejun and four existing independent non-executive directors named as, Ms. Zhao Lan, Mr. Wang Tongbo, Professor Xu Zheng and Dr. Wang Wenjing from directorship positions, which Hanergy TF said in a financial filing would not be contested by either Li Hejun or the four independent non-executive directors. The SFC can impose up to a 15 year ban via the court proceedings.
The main complaint by the SFC was that Li Hejun and the four independent non-executive directors failed to back Hanergy TF over contracts signed
Li Hejun had stepped down from the chairmanship role in Hanergy TF since the stock trading had been halted.
Several other key demands by the SFC are expected to be met by Hanergy Holding Group to enable Hanergy TF shares to be traded again on the HKSE.
The SFC has also demanded from Hanergy TF ‘detailed information on the Company, its activities, business, assets, liabilities, financial performance and prospects,’ which were demanded by the SFC soon after Hanergy TF share trading was halted as long ago as May, 2015 over stock trading and business models adopted by the company.
According to the Hanergy TF financial statement, it would also concede to providing the financial information demanded by the SFC. Hanergy TF had already engaged financial advisers to conduct due diligence and engaged auditors to conduct an audit on the consolidated financial statements to comply with the SFC demand.
Hanergy Holding will also be force to pay in full ‘sales contracts’ made by it and affiliate companies with Hanergy TF in 2010 and 2011 within 2 years of a court order being sought by the SFC.
These contracts primarily related to a-Si thin-film production lines, technology upgrades of production lines and module supply agreements, which were claimed to have been partially paid in the past but at least around US$205 million was left outstanding since the orders were claimed to have been fulfilled.
It was not exactly cleat what the total amount was left outstanding from the 2010 and 2011 sales contracts.
However, the turnkey a-Si thin-film production plant deals with third-parties that were behind the stock trading halt were all bar one cancelled and were signed years after the 2010 and 2011 sales contracts by Hanergy Holding and Hanergy TF.
Only after all the SFC demands have been met would Hanergy TF shares be allowed to trade again on the HKSE.
The only concession SFC is making to Hanergy Holding would seem to be related to the time lines given to the parent company to pay in full the 2010 and 2011 sales contracts.
In theory, Hanergy Holding via Li Hejun could sell shares on the open market to comply with the SFC demands as his holding was so large ahead of the stocks being frozen. Although this depends on what value the shares would hold once trading again and the scrutiny given to Hanergy TF’s business operations.
The SFC made no reference to unusual stock trading and collapse in the share price that prompted the halt to trading. It would also seem that the SFC has dropped demands that Hanergy Holding Group provide financial statements, although the demand that Hanergy TF provides more information about its trading with the parent and affiliates suggests this may be the route the SFC is taking to get a better understanding of the business model of both sides. This could ultimately lead to further legal action in due course.