Despite probe, Hanergy sold shares to staff before plunge

A Hanergy exhibition stand at Clean Energy Expo in Beijing. Days before shares in the solar power group halved in Hong Kong, its Beijing-based parent offered and sold stock in HTF to employees, even as the unit was being investigated by the local securities regulator.

Reuters/Hong KongDays before shares in solar power group Hanergy Thin Film (HTF) halved in Hong Kong, its Beijing-based parent offered and sold stock in HTF to employees, even as the unit was being investigated by the local securities regulator. Internal e-mails and a contract reviewed by Reuters show the employee purchase plan, launched on May 8, was offered at a 15% discount to the stock, then trading at HK$7.28, when the company had a market value of nearly $40bn after a fivefold increase since September. An internal email to employees of parent Hanergy Holding Group on May 19 said the offer received an “overwhelming response since the subscription started, with a large number of colleagues coming to complete the subscription and payment procedures every day”. The following day, shares in HTF plunged 47% in a few frantic minutes of trading and have been suspended ever since. HTF said it could not explain the drop. Some analysts and press reports had said the pre-crash valuation, which turned the group’s majority investor, Chairman Li Hejun, into China’s richest man, was based on a far too optimistic prognosis for its solar technology. Unknown to the employees, HTF had been the subject of a probe by Hong Kong’s Securities and Futures Commission (SFC) for at least two months for alleged market manipulation and was in contact with the regulator and the Hong Kong Stock Exchange (HKEx) over the investigation, a source with direct knowledge of the situation said. A second source with knowledge of the matter said the probe had been going on for “a while” but would not elaborate on the length. The investigation is ongoing, and HTF has not been accused of any wrongdoing. Hong Kong securities law says companies must not disclose such an investigation or information coming into a person’s knowledge in the course of assisting the SFC. Some lawyers said a company could be judged to have misled investors if it sold shares without revealing information otherwise obtained that might affect valuation. “SFC investigations are subject to statutory secrecy. In general, this means the fact that an investigation has been commenced or any details about it cannot be disclosed without the SFC’s consent,” said James Comber, a lawyer with Ashurst in Hong Kong, a law firm that advises clients on regulatory issues. “But if a company, its directors or officers are aware of underlying information related to an investigation that is not subject to statutory secrecy, they could potentially be liable for making false or misleading representations, or breaching ongoing disclosure requirements, if that information is not disclosed to investors.” HTF did not return requests for comment, and parent Hanergy Holding declined to comment. The SFC and HKEx declined to comment for this story. After receiving the offer, many Hanergy employees turned up with their passport and bank card in hand to sign up at the first available opportunity, one person familiar with the situation said. “Some invested their lifetime savings,” the person said. To reassure staff about the company’s prospects, Li held a meeting on May 25, a Monday, with a large group of employees on the fourth floor of Hanergy Holding’s headquarters in Beijing, the person said. He looked relaxed, cracking jokes, and said the company would maintain its positive course. He offered no explanation of the share plunge and did not mention any regulatory probe. A day earlier, he had recorded a television interview with state news agency Xinhua, broadcast on May 27, in which he denied there was an investigation.