Hong Kong securities watchdog slaps 8-year directorship ban on former Hanergy Thin Film chairman

The penalised chairman and four directors will not contest liability and the court orders, which was the first SFC imposed condition for Hanergy’s shares to resume trading

PUBLISHED : Monday, 04 September, 2017, 9:36pm
UPDATED : Monday, 04 September, 2017, 10:27pm

Li Hejun, who shot to fame in 2015 as mainland China’s richest person then on the back of the meteoric share price rise of his Hong Kong-listed Hanergy Thin Film Power Group, has seen his reputation permanently scarred by an eight-year ban from holding corporate directorship in the city.

The Securities and Futures Commission on Monday won orders from the Court of First Instance to ban former chairman Li and his four fellow non executive board members from being directors, or be involved in the management of any corporation for various periods of time in Hong Kong.

“On the basis of Li’s admissions, the court found that his breaches of duties were of a very serious nature,” the SFC said in a statement on Monday after the court handed down the ruling.

The court found that as chairman and executive director of both Hanergy and ultimate parent Hanergy Group, Li has breached his duties to Hanergy’s other shareholders to not engage in actions that are in clear conflict of interests, the SFC said.

Hanergy entered into multiyear agreements in which the company would sell to the parent US$8.5 billion of solar panel production lines, which allowed it to book handsome profit growth for several years before 2015 and helped drive up its share price.

But the agreements also meant that Hanergy had raked up huge receivables owed by the parent and made big prepayments to the parent for solar farms construction in subsequent years.

On the basis of Li’s admissions, the court found that his breaches of duties were of a very serious nature

At the end of June this year, the parent and its affiliates owed Hanergy a total of HK$4.97 billion (US$635 million), including HK$2.85 billion of overdue trade receivables, HK$1.1 billion related to other business contracts and HK$394 million prepayments made by Hanergy, according to Hanergy’s interim results announcement.

“Li plainly preferred the interests of Hanergy Holding and [its] affiliates to that of Hanergy,” the SFC said. “He also failed to exercise reasonable care and diligence in connection with an undisclosed loan of 900 million yuan (US$137.9 million) provided by a mainland subsidiary of Hanergy to [the parent] in March 2014.”

Hanergy failed to disclose the loan to its shareholders and to seek their approval as required by listing rules, it said.

With a market value of more than HK$300 billion, previously little known Hanergy was once the 16th-largest firm listed on the Hong Kong stock exchange, more valuable than blue chips like Hang Seng Bank, MTR Corp and the stock exchange.

Its share price had surged 664 per cent in the 12 months before a sudden sell-off in May 2015, which saw its value nearly halved in 70 minutes, before trading was halted at the request of its board.

Many mainland investors were caught by the subsequent prolonged suspension, as it was one of the most traded stocks through the Shanghai-Hong Kong Stock Connect.

The court found the other four directors “not only incompetent, but they also exhibited a marked indifference to their responsibilities as directors” as they failed to properly assess the financial positions of the parties and whether the receivables could be recovered, and take proper steps to recover them.

Zhao Lan, Wang Tongbo, Xu Zheng and Wang Wenjing have been stripped of their independent non-executive directorships in Hanergy by the Monday court ruling.

Zhao and Wang Tongbo’s ban will last four years, while Xu and Wang Wen Jing have each received a three-year disqualification.

While each of Li and the four directors has agreed not to contest liability and the court orders, which was the first condition imposed by the SFC for Hanergy’s shares to resume trading, it remains uncertain whether the other conditions will be met.

The other conditions include its parent Hanergy Holding having to pay all its receivables owed to Hanergy arising from two solar panel production equipment sales contracts in 2010 and 2011.

“The company has been putting its best endeavours to fulfil the second requirement

in respect of the disclosure document,” Hanergy chairman Yuan Yabin said in a filing to Hong Kong’s stock exchange after the market closed on Monday.

Hanergy said in the filing that its board had appointed Lo Man-tuen – chairman of Hong Kong trading firm Wing Li Group (International), Peking University finance professor He Xiaofeng, Beijing Jiaotong University economics professor Zhang Qiusheng and lawyer Wang Dan as its new independent non-executive directors.