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BreakneckgrowthofHanergyraisesquestionsFT.com
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January27,20156:18pm

BreakneckgrowthofHanergyraisesquestions
MilesJohnsoninLondonandLucyHornbyinBeijing

LiHejun,founderandownerofHanergy,isChina'sfifthrichestman

ItisaChinesecompanythatpromisestorevolutionisethewaysolarpowerisusedandtobecometheAppleofgreenenergy.
ThebreakneckgrowthofHanergyGroup,theworldslargestsolarcompanybymarketvalue,hashelpedtomakeitsfounderChinasfifth
richestman.Sharesinits$18bnHongKonglistedsubsidiary,HanergyThinFilmPowerGroup,haverisenmorethan300percentsince
thestartof2014.

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HanergyisbuildingfactoriesacrossChinaandhassnappedupfouroverseasdevelopersofthinfilm
technologyastillevolvingapplicationsince2009.FounderLiHejunhastoldinvestorsthatHanergy
Groupisdestinedtobecometheindustryleaderalthough,asyet,onlya10thoftheworldssolarproduction
isofthisthinner,lightertechnologybecausecostsarehigherthanforotherpanels.
TheFinancialTimes,inanalysingrecentfinancialstatementsofthecompany,hasfoundsome
unconventionalpracticesbehindHanergyGroupssoaringfortunes.Ithasbeenrackingupenviable
revenueslargelythroughsalesbetweenitslistedsubsidiary,HTF,anditself.

FirstFTisournewessential
dailyemailbriefingofthebest
storiesfromacrosstheweb

Whilemanyofitsrivalshavestruggledtoremainprofitable,HTF,whichsellsequipmentusedtomakesolar
panels,hasreportednetprofitmarginsofover50percent.

Itisnowworthmorethanthreetimesasmuchasitslargestcompetitor,theUSthinfilmsolarpanelcompanyFirstSolar.InChina,HTF
isworthmorethanallotherlistedChinasolarcompaniescombined.Itssharesrose10percentinintradaytradeonTuesdayalone.
DocumentsreviewedbytheFinancialTimesshowthatmuchofthegrowthcomesfrom
within.NearlyallofHTFsHK$14.8bninreportedrevenuesince2010havebeenfromsales
ofequipmenttoitsparent,HanergyGroup,whichcontrols73percentofitsshares.Its2013
annualreportthecompanysmostrecentfullyearaccountsshowsthatonly35percent
ofthesecontractshavebeensettled,withthebalanceheldasreceivables.
Inrecentweeks,aninfluentialanalystreportonHanergysbusinessmodelhasraisedother
doubtsaboutthecompany.FrankDaiMingfang,chiefexecutiveofHTF,brushedoffall
worriesinaninterviewwiththeFTaswellasreportsthathedgefundswereshortingits
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sharesasbeingrootedinabasicmisunderstandingaboutHanergysproductline.Noone
elsecandowhatwedowithsolarpowerembeddedinglasswindows.
Healsonotedacertainraresynergy,unusualoutsideChina,regardingthesalesbytheHong
KonglistedcompanytoHanergy.Ourclientatthemomentisourmainshareholder.Thatis
thepointthatmakesotherpeoplesuspicious,MrDaisaid.
HanergyGroupproducessolarpanelsusedin
solarfarmsandonroofsandisdeveloping
technologythat,ifsuccessful,wouldallowsolar
tobeusedwidelyinbuildingsandcars.MrDai
saidproductionisrampingupslowlyand,asyet,
nofactoryisoperatingatfullcapacity.Hanergy
aimswithinthenextfiveyears,however,to
accountforhalfoftheworldsprojectedthinfilmproductionanambitioustargetof10
gigawattsthatrequiressignificantupfrontcostsinitsmanufacturingbases.
HanergyGrouphasninefactorieswithone,nearChengdu,havingtwoproductionlines.
Accordingtothecompanysfinancialstatements,thesefactoriesarethemainclientsofHTF,
whichprovidesthemwithequipmenttomakethinfilmsolarpanels.AreviewbytheFTof
Chineseaccountsofthefactoriesfoundalargegapbetweenthereportedrevenuesupto2012
andthemoneythefactoriesspentbuyingequipmentfromHTF.
(TheFTonlyviewedaccountsforeightoftheninefactoriescompanyrepresentatives
declinedtoexpandorsharemorerecentaccountdata.)MrDaisaid,2013shouldbemuch
betterand2014shouldbegood.
In2012,thefactoriesreportedcombinedpanelsalesofRmb315m($50m)abouta10thof
theequipmentsalesthelistedunitmadetotheparentcompanythatyear.ThesamefactoriesreportedacombinedRmb38mlossforthat
year,withdebtsofnearlyRMB1.2bn,accordingtoChineseStateAdministrationforIndustryandCommercefilings.
InaninterviewinthecompanysBeijingheadquarters,companyexecutivesacknowledgedthatHanergyGroupisnowlosingmoneybut
saidthecompanyisahightechplusenergymodelwhosemarketpotentialnotunlikeGoogleorAlibabadrivesitsshareprice.We
donotthinkitisstrangeatall,MrDaisaidaboutthevalueofitslistedarm.
AskedaboutthecurrentoutputofHanergyGroup,MrDaisaid,asofJune2014,thelisted
unithaddelivered2.4GWinproductionequipmentorabout1.7percentofallofthe
worldsinstalledsolarcapacity.Pressedtoexplain,hesaid:Inprincipletheircapacityhas
reached2.4GW.Askedtoelaborateaboutcurrentoutput,MrDaisaid:Itsnotupto
2.4GW,thatsallIcansay.
CompanyofficialsconfirmedthatHanergyGroupsmanufacturingbaseswereoperatingat
verylowlevelswithonly200MWfullyrampedupofthe2.4GWofequipmentdelivered.At
thisstage,theyhavetobelosingmoney,MrDaisaidaboutthefactories.Butbytheend
therewillbenoproblem.Ifyouownahugehouse,andyouhavefourbedroomsandneedto
airconditionthembutareonlyusingonebedroom,thenitistotallydifferenttousingall
four.
MrDaisaidthedecisiontoinvestinseveralfactoriesatonce,evenatthecostofverylow
ratesofproduction,wasaquestionofstrategy,thecompanystrategy.MrDai,whoruns
HTFandisalsoavicepresidentofHanergyGroup,wouldnotoutlineatimetablefor
increasingoutputhealsosaidthatalthoughhecouldnotexplainMrLisstrategy,he
believedscalewasessentialtodrivedownproductioncosts.
HTFsbusinessasequipmentsuppliertoitsparentdatesfromHanergysinitial2009
purchaseofsolarequipmentfromaHongKonglistedprovider,ApolloSolar.HanergyGroup
eventuallyboughtmajoritycontrolofApolloSolarandrenameditHanergyThinFilm.
In2011,Chinaannouncedadrivetodevelophightechchampionsandenergysavingand
environmentallyfriendlytechnologies.ThegovernmentannounceditwouldpourRmb10tn
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intothosestrategicindustriestoreducedependenceonimportedoilandtotackle
politicallyunpopularpollution.SeniorleadersincludingXiJinpingin2011beforehe
becameheadofstatehavevisitedHanergyfacilities.
HTFssoaringsharepriceoverthepastyearhasmadeHanergy,inthewordsofanalyst
CharlesYontsofCLSAbrokerage,toobigtoignore.InDecember,MrYonts,whoheads
sustainableresearchattheHongKongoffice,focusedonHanergybyasking:Aretheyreally
thatgood?Hewrote:workingthrough[HTFs]businesses,wecantmakethemaddupto
thecompanysmarketcap.
MrYontsnotedonTuesdaythatwereHanergyGroupproducingatcapacityitspanel
outputwouldroughlybesufficienttocoveroneofthesmallerEuropeanstatesyetnarya
Hanergypanelhasbeenseeninthewild.
MrDaisaidthattheevolvingsolarmarketisdifferentthanotherindustries.HesaidMrYontshadfailedtoconsiderthatitsglasspanels
canbesoldasconstructionmaterial,adistinctionthatcompanyofficialssaidwasimportantinassessingwhereHanergysoutputmight
go.
MostofHanergyspanelshavegonetoitsownprojects,ofwhichsomesolarfarmshavebeentransferredtothelistedcompany.MrDai
declinedtospecifyhowmuchsolargenerationcapacitytheHanergyparentcompanystillownedorhowmuchmoneyitmade.
HTFhasplans,accordingtotwocompanypresentations,tobuilda50MWfarminHenanProvince,a19MWfarminCalifornia,andan
ambitious400MWsolarprojectinGhanaequivalenttoaboutafifthofthatcountrysentirecurrentinstalledelectricitycapacity.
HTFinDecemberalsomadeanotablesalefromitssolarfarminventory:itsold180MWofsolarfarmsdevelopedinthefarwestern
regionsofXinjiangandQinghaiforaprofitofRmb777.6mtoapreviouslyunknownChineseinvestmentvehiclecalledHongsheng.
EddieLam,financedirectorofthelistedcompany,saidthesaledemonstratesanexternaldemandforHanergyproducts.Documentsseen
bytheFT,however,haveraisedsomedoubtsaboutthedealwithHongsheng,whichhasnowebsiteandhadneverbeenmentionedinthe
ChinesemediabeforeitspurchasefromHTF.
CompanyregistrationdocumentsshowthatHongshengwasincorporated13daysbeforethedealwasannounced.Oneofthethreefunds
thatownsHongshenghasasitslegalrepresentativethewifeofVictorWong,aformerHTFboardmember,whosteppeddownfromhis
roleinMaylastyear,eightmonthsbeforethesaletookplace.
MrDaisaidhewasunawareoftherelationshipuntilqueriedbytheFT.Actuallywehavetothankyou,MrDaisaid.Onlyafterwe
receivedyourquestionsdidwerealisethis.
HesaidthatHTFslawyershadsinceinformedhimthatMrWongswifespresenceinthefund,andHTFnothavingpreviouslydeclared
this,didnotbreachanyrulesforrelatedpartytransactionsforHongKonglistedcompanies.
MrDaialsosaidthatHTFwaspursuingcontractstosellsolarpowertocorporationsandwesternconsumers,includingrecentlysigning
dealstoinstalllightweightpanelsatHondaandVolkswagenplantsinGuangdongprovince,aswellasacontractforchargingstationsfor
Tesla,theelectriccarmanufacturer.IthasalsosoldrooftopsolarassembliesforhomeusethroughIkea.
Noneofthoseoutsidedealsisyetgeneratinglargerevenues,butMrLamsaidtheylaidafoundationforawinwinbusinessmodelof
salesofpowerfromHanergypanelstoexternalcustomers.
Inayearortwo,alotofwhatyouseeasproblemswontbeproblemsanymore,MrDaisaid.Youwillbeabletoseeitisanamazing
company.
Rags,richesandmysteries:Chinasfifthrichestman
ManyChineseprivateentrepreneurshavearagstorichesstorybutLiHejun,founderofHanergyGroup,leavesmysteriesinhiswake,
writesLucyHornbyinBeijing.
HeisnowrankedChinasfifthrichestmanbyForbes,ashislistedcompanyballoonstoa$18bnmarketcap.Hanergysheadquarters,a
convertedclubnorthofBeijingsOlympicstadium,islavishlyfurnishedwithwoodfromtheendangeredrosewoodtree.Proudlydisplayed
onthewallsarephotosofMrLiusheringseniorleadersaroundhisfacilities.
FastfortunesinChinaareoftentiedtopowerfulpatronsbutMrLiappearstocomefromahumblebackground.Likemanyinhishome
townofHeyuaninGuangdongprovince,heisaHakka,apeopleknownfortheirbusinessacumenandstrongcommunityties.
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Hanergysluckliesinthefactthatwetookadvantageofgoodtiming,atimeinwhichnewenergyisreplacingconventionalenergyona
largescale,hetoldChinesemedialastyear.
MrLisfirstventurewasanelectroniccomponentsbusinessinBeijingaftergraduatingfromJiaoTongUniversity.Hereturnedtohis
hometowntobuildasmallhydropowerdam.
Bytheearly2000s,MrLihadobtainedconcessionstobuildninemoredamsalongtheskirtsoftheHimalayasinYunnanprovinceand
beganpromotingthemtoUSinvestors.
Thenmisfortunestruck.Powerfulstateownedcompaniesmuscledin,leavingMrLiincontrolofjustoneofthoseprojects.Thatdam,
Jinanqiao,isthecashcowthatenableshisforayintosolarpower.
RELATEDTOPICS China, Climate change, China Society, Renewable Energy

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