China’s Hanergy Thin Film unveils huge loss as auditor flags concerns

PUBLISHED : Friday, 01 April, 2016, 11:14am
UPDATED : Friday, 01 April, 2016, 6:02pm

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Hanergy Thin Film Power Group, majority-owned by mainland businessman Li Hejun whose brief status as China’s richest man ended when its share price plunged 47 per cent in an hour last May, said its net loss for last year was a whopping HK$12.23 billion.

The bulk of the loss incurred by the solar farm developer and maker of the production lines for solar power panel parts was HK$9.65 billion of asset impairments, HK$7.92 billion of which were on goodwill booked in the past when it acquired assets at higher prices than their net asset value, to reflect their current valuation.

The loss compared with a net profit of HK$3.2 billion in 2014, it said in a filing to Hong Kong’s stock exchange late on Thursday.

Revenue dived 70.7 per cent to HK$2.81 billion, which the firm said was due predominantly to its failure to deliver new production lines to its parent Hanergy Holding, its biggest client.

It also blamed the suspension of its shares’ trading by Hong Kong’s securities regulator for a “material negative impact on [its] reputation” that saw customers and suppliers cut, suspend or delay cooperation with it.

Despite slumping sales, employee compensation expenses jumped a third to HK$977.4 million.

Its external auditor Ernst & Young said it was unable to obtain “sufficient appropriate audit evidence” from Hanergy on the recoverability of HK$4.93 billion of trade receivables due from its customers and some prepayments they made.

This [loss] ... may cast significant doubt about the company’s ability to continue as a going concern
Ernst

“This [loss], along with other matters ... in the consolidated financial statements, indicates the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern,” the auditor said.

They were unable to obtain “sufficient appropriate audit evidence about the recoverability” of HK$4.93 billion of trade receivables owed and amount due from customers for contract work.

“Any under-provision for the recoverability of these balances would reduce the net assets of the group ... and increase the group’s net loss,” they added.

Of the HK$2.6 billion of trade receivables owed by its parent and sister firms, HK$1.71 billion was more than six months past due.

Thanks to multi-year agreements by its parent to buy US$8.5 billion of solar panel production lines from it, Hanergy booked handsome profit growth for several years prior to last year.

Its stock rocketed more than six-fold in the 12 months before trading was suspended last May, giving it a market valuation six times that of United States-based First Solar, widely considered the global leader in the thin-film solar panel sector. First Solar entered the industry in 1999, while Hanergy joined the fray a decade later.

Hong Kong’s Securities and Futures Commission (SFC) subsequently ordered that its trading be suspended indefinitely, until it could fulfil certain disclosure requirements from the stock market regulator.

It also raised concerns about the company’s viability given its heavy reliance on its parent for sales and profits, and Hanergy’s ability to keep the market “properly informed”.

The SFC had demanded to see the audited financial statements of its parent for the four years to 2014, as well as details of loans still owed by Li, who is chairman of both Hanergy Thin Film and its parent.

Hanergy Thin Film said the documents were “private” and it had “no control” over its parent and Li, and could not compel them to produce the documents.

It said it had presented a proposal to address the SFC’s concerns in the form of an asset restructuring, but the SFC considered the proposal insufficient.

Hanergy was in a dire liquidity position at the end of last year, with current assets exceeding its current liabilities by HK$8.19 billion and cash dropping to HK$660.3 million from HK$3.13 billion a year earlier, raising concerns about the sustainability of its operations.

Still, it said it has recently inked a contract to supply US$125 million worth of solar panels production line to “an independent customer”, adding its solar farms business is undergoing “substantial expansion”.

Its directors said they believe it can meet its liabilities when they fall due in the “foreseeable future”.