China's Hanergy loses US$585 million intra-group order signed in May

[HONG KONG] Hanergy Thin Film Power Group's biggest client has cancelled a recently signed US$585 million order that makes up nearly half its annual sales, in another setback to the Chinese solar energy firm which is being probed by Hong Kong financial regulators.

Hanergy said in a stock exchange filing on Monday that an equipment sales and technical services deal struck in May between its parent Hanergy Holding - its biggest customer accounting for two-thirds of sales - and wholly-owned subsidiary Fujian Apollo is off. It gave no reason for the move.

The cancellation underscores Hanergy's vulnerability given its dependence on a limited client base - its five largest customers account for 98 per cent of its sales. Since its revenues are predominantly driven by affiliated companies, earnings could be volatile. "Whether it is an external or internal client, it's not a good sign because of the size of the order," said an analyst at a research firm in Hong Kong, declining to be identified because his firm did not formally cover Hanergy.

In May, Hanergy shares plunged 47 per cent within an hour's trading, wiping US$18 billion off its market value before being suspended at the company's request. It later emerged the company had been under investigation for several weeks by Hong Kong's Securities and Futures Commission (SFC) for alleged market manipulation.

At that time the company said in a statement that trading had been suspended "pending release of an announcement containing inside information". The SFC did not disclose the nature of the probe.

Fujian had agreed in May to sell and provide technical services to Hanergy Holding, which owns a 73.19 per cent stake in Hanergy. Under that arrangement, Hanergy Holding agreed to buy six sets of silicon-based thin-film solar energy panel module assembly lines with a production capacity of 900 MW from Fujian for US$175.5 million.

A technical services deal between the two had also been agreed, under which US$409.5 million would be paid to Fujian.

Hanergy said on Monday that after "arm's length negotiations" the companies had cancelled the agreements and that there would be no material adverse impact on the group's business.

The company, which clocked sales of HK$9.6 billion (S$1.7 billion) in 2014, did not immediately respond to emails and calls from Reuters.

Hanergy, controlled by founder Li Hejun who tops China's rich-list, had in the past year seen a six-fold rise in its market capitalisation to US$40 billion. The surge has been backed in part by Beijing's push for solar energy, although some point to the firm's own bullish outlook for its products.

REUTERS