In February 2015, I likened the business model of Hanergy Thin Film Power Group (00566.HK) to The Human Centipede, a Dutch horror movie. Five months later, the company was forced to suspend trading for excessive connected transactions.
The company has come back with a privatization offer. Hanergy Thin Film said on Tuesday it plans to take it private for no less than HK$5 per share via a cash acquisition or share replacement and then relist it on China’s A-share market. That would mark a price premium of 27.9 percent, and its valuation could reach over HK$210 billion.
In the article I wrote three and a half years ago, I said that Hanergy Thin Film had excessive connected transactions with its parent company. About 99 percent of its revenue from product sales and services could be traced to the parent. And most of its expenditures were purchases of solar panel parts from the parent. That created a self-sufficient business model, which could expand without limits.
Hanergy Thin Film saw its share price surge sixfold between April 2014 and April 2015, and its market cap soared above HK$300 billion. Its former chairman Li Hejun was ranked the richest man on Hurun’s China Rich List in 2015.
Indeed, Hanergy’s unique business model is very similar to The Human Centipede. The film tells the story of a German surgeon who kidnaps three tourists and joins them surgically, mouth to anus, thus forming a “human centipede”.
However, the share price later collapsed, and the Hong Kong stock exchange ordered a suspension of trading of the company’s shares.
Hanergy Thin Film then tried to reduce the ratio of connected transactions and resume trading of its shares.
But it has yet to get an approval from Securities and Futures Commission. The company would be forced to delist from the Hong Kong market if it failed to obtain a green light for resuming trading by the end of July 2019. By then, the company would need to compensate small shareholders for their losses.
The privatization offer was made to protect the interest of small and medium investors, the company said. The parent company said in a statement that the relisting plan shows its confidence in China’s A-share market and the economy.
Li Hejun and his subsidiaries hold a 66.6 percent stake in Hanergy Thin Film. He needs to spend around HK$71 billion to acquire the remaining 33.4 percent stake from small shareholders.
The billionaire has a personal wealth of around 30 billion yuan (U$4.32 billion, HK$33.89). So how could he afford a privatization deal worth more than HK$70 billion?
It’s possible that Li might secure support from other deep-pocketed investors, just like what LeTV founder Jia Yueting did.
Moreover, the company said the privation deal will be conducted via a cash acquisition or share replacement. That means the company could issue share replacements instead of using cash for the deal.
For minority shareholders, a share replacement is better than nothing. They might have to go through a lengthy court case if the company was forced to delist next year.
Thus, a relisting on the mainland China may be a better option for them.
This article appeared in the Hong Kong Economic Journal on Oct 24
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]