Troubled Hanergy’s Debt Web Snags State Banks to Shadow Lenders

One of the many mysteries behind the share price collapse of the solar panel maker controlled by Li Hejun is this: Which of the Chinese billionaire's many creditors risk losing every yuan they put into his company?

A plethora of Chinese lenders are exposed to Hanergy Thin Film Power Group Ltd. and its parent company, including Industrial and Commercial Bank of China, which is owed tens of millions of dollars. On May 20, 47 percent of Hanergy Thin Film’s market value vanished in minutes and it’s now under probe by the Hong Kong Securities & Futures Commission.

Creditors are nervous: A group of 11 lenders have asked for a meeting to voice their concerns and discuss their $82 million loan, say people familiar with the matter.

“The interesting thing with Hanergy is that so much is happening with the parent company that investors know nothing about,” said Charles Yonts, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “The opacity about parent finances and billings is extraordinary.”

A Bloomberg examination of debt held by Hanergy Thin Film and its closely held parent, Hanergy Holding Group Ltd., show Li has tapped a variety of financing sources since the Hong Kong unit’s stock started surging last year. They include policy-bank lending, short-term loans from online lenders with interest rates of more than 10 percent and partnerships with local governments.

Hanergy’s Lenders

Lenders also include China Everbright Bank, China Minsheng Bank, two of the companies set up to manage Chinese banks’ bad assets; and Harvest Fund Management Co., one of the country’s biggest fund managers with assets of more than $55 billion.

Hanergy’s lenders either declined to discuss their loans or didn’t return phone calls and faxes from Bloomberg News. One lender, the online microfinance site Itouzi, issued a statement on its website May 21 saying the stock plunge hadn’t affected Hanergy Group’s ability to pay off its loan.

Hanergy Group has given no public accounting of all its debt or the debt scattered among its units. In its 2014 full-year results, Hanergy Thin Film reported debt of 4.4 billion yuan ($710 million).

Hanergy Thin Film and its parent have secured loans despite long-time concern about its finances. Thin Film got 62 percent of its sales from its parent in 2014, according to its earnings report. It classified 28 percent of current assets as receivables from the parent -- assets owed but so far undelivered.

Best Shape

A Hanergy spokesman declined to answer questions about the company’s debts. But Li says Hanergy has never been better.

“Hanergy is in its best shape since it started,” Li told the Xinhua News Agency in an interview published May 28.

Among the 11 banks behind the $82 million loan is ICBC Asia, the Hong Kong unit of ICBC. That’s only part of the bank’s involvement: ICBC has lent Hanergy units at least 400 million yuan in loans, according to people familiar with the matter who asked not to be identified because ICBC hasn’t publicly disclosed the information.

Export-Import Bank of China offered a standby letter of credit for the 11-bank loan. Separately, China Development Bank extended a 30 billion yuan line of credit to Hanergy in 2011, according to the official Xinhua News Agency.

Pledged Capital

Local governments have also provided money. Hanergy entered separate financing deals with governments in Sichuan, Shandong and Hebei. In at least three cases, Hanergy or its units pledged the entire registered capital of projects to China Huarong Asset Management Co. and China Orient Asset Management Co., two of the firms China created 16 years ago to handle bad loans from the nation’s largest lenders. They’ve since taken on other business as well.

In March, a Huarong subsidiary extended 270 million yuan in loans maturing in 2018 to a Hanergy unit in Jiangsu province, with inventory as collateral, according to a March 27 filing to local authorities. The same Hanergy unit has another 100 million yuan loan from China Everbright Bank that matures in July, according to another filing.

A Huarong press release features pictures of Li and Huarong’s chairman, Lai Xiaomin. Last week, Huarong denied a Financial Times report that it lent Hanergy $200 million backed by shares. Asked about the other lending, a Huarong spokesman referred a reporter to its previous denial.

Trust Companies

Hanergy pledged ownership stakes in a hydropower station in southern China to four trust companies, a guarantee company and a subsidiary of Harvest Fund Management in exchange for credit. It also guaranteed more than 100 million yuan in loans from online microfinancer Itouzi, and took 18.5 million yuan in loans from another microfinancer, Jimubox, according to the two lenders’ websites. On May 30, Itouzi started raising funds for a 10 million yuan loan guaranteed by Hanergy; demand was 30 percent as of Monday.

In a statement Monday, Jimubox spokesman Wang Yichao said the company did its due diligence and has an “irrevocable guarantee” for its loans. Itouzi declined to comment.

Then there’s the case of Baota Petrochemical Group Co. In March, Hanergy said it planned to issue as many as 3 billion shares to Baota to cement a relationship after Baota bought production line equipment from a Hanergy Group subsidiary for $396 million. In a Hong Kong exchange filing, Hanergy said Baota is “independent of and not connected with the company.”

Jinzhou Loan

There is one indirect link: Baota is the second-biggest shareholder in a Liaoning-based bank, Bank of Jinzhou. According to documents seen by Bloomberg, Jinzhou has sold wealth management products that invested in Hanergy’s debt.

A Jinzhou bank spokesman declined to comment on the link, saying the bank had already referred the matter to Chinese regulators. A Baota media officer who refused to give his name said Jinzhou issued the products before Baota became a shareholder and Baota had no link to Hanergy.

Li, who holds a 73 percent stake in Hanergy Thin Film, has also used shares as collateral to secure loans. In its 2013 annual report, Hanergy said it pledged 5.1 billion shares to four financial companies.

“Hanergy Group was basically using the listed company as a means to produce collateral in the form of shares that it could then pledge to secure financing,” said Francis Lun, chief executive officer of Geo Securities Ltd. in Hong Kong.

Amid the growing doubt about Hanergy’s finances, banks have sought to protect themselves by asking Li to guarantee loans personally, according to a person involved in one loan deal with the company. The person, who asked not to be identified because he wasn’t authorized to speak publicly, said he felt Hanergy was too risky to lend more than a small amount.

That precaution accords with a financing deal Hanergy signed with China Minsheng Trust Co. for 150 million yuan in 2014, backed by a stake in its Jinanqiao hydropower dam. According to a document seen by Bloomberg News, the ultimate guarantor of that loan was Li Hejun himself.