China Singyes plunges, highlighting cash flow woes of China’s private companies and solar industry
- Trading resumed after a three-month suspension that prevented investors from selling on its earlier debt-default news
- Many Chinese solar farms developers suffer from weak operating cash flow
Shares of China Singyes Solar Technologies Holdings plunged as much as 72 per cent as trading resumed after a three-month suspension that had prevented investors from selling on its earlier debt-default news.
The fall on Wednesday happened despite the privately backed firm saying it may have found a state-owned utility as its potential white knight. It closed 48.4 per cent lower at HK$1.10.
The Zhuhai-based firm, controlled by mainland businessman Liu Hongwei, said Strong Eagle Holdings – 53 per cent owned by chairman Liu – has inked a memorandum of understanding to potentially buy Singyes shares from Strong Eagle as well as new Singyes shares to be issued.
It is non-legally binding. Completion of the transaction is subject to due diligence results, the Hong Kong-listed Singyes successfully reaching an agreement with its creditors to restructure its debt, and board and shareholders approval of the shares purchase.
Singyes and Strong Eagle must not negotiate or agree to sell Singyes shares to any other parties for two months, other than the potential buyer, Shandong provincial government-owned Shuifa Energy Group.
“The possible transaction is subject to further negotiation and execution of a formal sale and purchase agreement,” Singyes said in a filing to Hong Kong’s bourse Tuesday night. “It is contemplated the potential purchaser will own not less than 50.1 per cent of the enlarged issued share capital of the company.”
This means the buyer will be required to make an offer to buy shares owned by other Singyes shareholders at the same price under Hong Kong’s securities regulations, it added.
Singyes closed the morning session 56.3 per cent lower at 94 HK cents at noon.
Singyes is not alone.
Mainland China saw a total of 120 billion yuan (US$16.7 billion) in corporate defaults last year amid a prolonged economic slowdown and credit tightening.
Many Chinese solar farms developers suffer from weak operating cash flow caused by delayed subsidy disbursement by the government, tight refinancing conditions and falling value of solar farms, which make it hard for them to raise cash by assets disposal, Fitch Ratings said.
“Default risk is likely to remain elevated for other solar farm operators unless there is a shift toward more supportive government policy, an improvement in funding conditions, or significant progress on asset sales,” said Yu Wei, Fitch’s Shanghai-based associate director, in a note earlier this month. “Companies with large upcoming bond maturities are the most vulnerable,” Yu added.
China Singyes said in mid October it failed to repay a US$160 million bond and interest owed. It has a US$260 million note to repay by next month, according to Fitch Ratings. It also has a 930 million yuan bond due in August this year.
Shuifa Energy, set up in July 2017, is part of Shuifa Group, which engages in water supply and sewage treatment, agriculture, natural gas supply and solar, hydro, wind, biomass power generation.
Energy takes up just over a quarter of the group’s total assets, including 140 mega-watts of solar farms.
Singyes was set up in 1995 as a buildings curtain wall installation engineering company. Over the past decade, it diversified into solar panels installation and solar farms investment.
Its debt default was a result of over-expansion into capital-intensive solar farms investment and Chinese banks’ credit tightening last year as part of Beijing’s economic debt deleveraging, which hit private enterprises particularly hard.
Solar farms developer GCL New Energy, controlled by Jiangsu tycoon Zhu Gongshan said in August it was seeking to sell to large state-backed firms its controlling stakes in 2,000 MW of projects, nearly a third of its total.
It sold two projects with 160 MW of capacity to CGN Solar – a unit of state-owned nuclear giant China General Nuclear Power – in October for just over 300 million yuan.