Chinese Stocks Stumble As Hanergy Debt Debacle Looms Over All The 500%-Club

If one sentence sums up the farce that the hyper-speculative ponzifest that is the 500% club in China it is "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." While the stock has been cut in half, lenders remain mired in opacity as they try to figure out, as Bloomberg reports, which of Chinese billionaire Li Hejun's many creditors risk losing every yuan they put into his company? Shenzhen and CHINEXT indices are lower out of the gate today after a 14% and 18% surge in the last 2 days as a group of 11 lenders (ranging from large banks to small asset managers) ask for a meeting to discuss various loans with various Hanergy entities... and whatever they find in Hanergy is bound to have been repeated manifold across China's manic markets.

 

The surge is over... for now...

 

As investors grow a little weary of "the opacity about parent finances and billings," in Hanergy and across numerous other names we are sure. As Bloomberg reports, 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.

"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.

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.

 

Local governments have also provided money. Hanergy entered separate financing deals with governments in Sichuan, Shandong and Hebei.

 

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.

 

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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).

 

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.

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Coming to the rest of the 500% club soon...

(Note: These are all Year-to-date performance figures!!)