Updated: Tool Order: Hanergy TF wins US$660 million equipment and plant deal

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Updated: Hanergy Thin Film Power Group’s thin-film equipment manufacturing subsidiary, Fujian Apollo has won an order valued at US$660 million to supply 600MW of tools and plant operations to Shangdong Macrolink New Resources Technology Ltd. 

Hanergy TF said in a financial statement that Fujian Apollo would supply the production line equipment at a cost of US$198 million, while technical services fees related to the equipment order would amount to US$462 million. 

The combined sales and service contacts totalled US$660 million. 

Shangdong Macrolink New Resources Technology is believed to be a new subsidiary of Macrolink Group, whose annual operating income Hanergy TF said it estimated at approximately RMB55 billion (US$8.8 billion), while its total asset value exceeded RMB50 billion.

Macrolink was said to have placed the production line order to produce thin-film modules for building-integrated PV (BIPV) applications, suggesting the order is for amorphous silicon (a-Si) thin-film module production. 

Macrolink New Resources Holding Company is also purchasing approximately 3.60% of the existing issued share capital in Hanergy TF and approximately 3.48% of the enlarged issued share capital of the company immediately after the completion of the contract and valued at HK$3,750,000. 

Hanergy TF said the share issue was intended to “establish a long-term business relationship” with the customer.

Hanergy TF also noted that Macrolink Group held a 40% interest in Macrolink New Resources Holding Company while the remaining 60% interest was held by several unidentified “independent third party investors”.

Closing deal details 

According to Hanergy TF, on receipt of payment of 80% of the total US$660 million purchase contact a second and much larger tranche of newly issued shares would be issued to Macrolink New Resources Holding that could be worth HK$5.46 billion (US$703.9 million) in total. 

From that perspective Hanergy TF is using shares worth more than the equipment and service contract price combined with Macrolink New Resources Holding and unidentified majority shareholders in Macrolink Group subsidiary to secure direct bank account transfer payment of around US$528 million. 

Further details of contract and its payment structures after the major share issue were not disclosed.

Hanergy’s amorphous silicon thin-film production delays 

Aside from the equipment and service contract for issued shares deal between Macrolink and several unidentified investors, Hanergy TF has incurred unspecified delays in meeting contractual milestones with owner Hanergy Group over the start and ramp of both a-Si and a-SiGe tandem junction thin-film module production, according to financial filings in 2014. 

At the end of the first-half of 2014, Hanergy TF had only delivered a total of 2.3MW of a-Si thin-film modules to Hanergy Group under an initial supply contract of 677.9 MW for the construction of downstream PV power plant projects. 

The module production delays in relation to the failure to meet shipment quantities had meant Hanergy TF was then in negotiation with the Hanergy Group affilitaites to return prepayments valued at HK$755,906,000 (US$97.46 million before 25 August 2014 with a total capacity of 270.6MW PV modules and delay the delivery of the rest of PV modules with a total capacity of 346.5MW to 31 December 2014, according to financial filings.

Hanergy TF has yet to update in financial filings the outcome of those negotiations. 

Focus of attention mid-year was on actually bringing two production plant lines on-stream known as Shuangliu Base II (Sichuan) main line and Wujin (Jiangsu) supplementary line. Hanergy TF has not made any further public updates on the status of these or other production plants it has delivered to Hanergy Group and its affiliates. 

Although Hanergy TF had said it had delivered and completed installation of a-Si thin-film production lines under two original contracts totalling a massive 5GW of capacity no further updates including possible module shipments have been made by the company or by Hanergy Group.

Recently, Hanergy TF revealed for the first time its master supply contract for modules to Hanergy Group and its affiliates in the wake of questionable internal transactions between the parent and subsiduary by the Wall Street Journal and Financial Times.

Also for the first time Hanergy TF outlined the supply contracts by technology, but did not separate out a-Si and a-SiGe based modules which combined totalled 1.5GW of orders. 

The assumption being made is that the a-SiGe modules with conversion efficiencies of 10% and higher are destined for Hanergy Groups and its affiliates previously announced gigawatts of as yet un-built ground mount PV power plants in China as well as projects in places such as Ghana totalling 400MW.

The second assumption is that the low-efficiency single junction (a-Si) modules are destined for BIPV applications, which Hanergy TF stipulated in the master supply agreement as supplying 5,300,000 square meters, rather than in megawatts. 

The company has yet to publically reveal average module efficiencies of either a-Si or a-SGe modules or the total aperture area of these modules so actual dimensions remain unknown. Indeed with BIPV modules these could have multiple module sizes depending on the BIPV project application. 

However, with approximately 5GW of completed a-Si and a-SiGe production lines completed by mid-2014 and at least 1.5GW of known orders, Hanergy Group has a significant amount of underused capacity for 2015 through 2017, according to the initial master supply agreement. 

Speculation on the transaction

Although pure speculation at this time, the latest order and service contract announced with Macrolink and several unidentified investors could actually relate to the purchase of several recently completed production plants that would seem to be surplus to near-term requirements. 

This could ultimately explain the unusual payment terms that technically benefit Macrolink and the unidentified independent third parties more than Hanergy TF. 

However, Hanergy Group does get to offload 600MW of production equipment, plant and other related production assets that it has already paid to Hanergy TF as well as gaining hard cash for free shares.  

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