Burned again

“THE history of the development of the human society is a history of discovering and exploiting energy.” With those grand words did Li Hejun (pictured), one of China’s wealthiest billionaires, inaugurate a giant exhibition centre devoted to clean energy near Beijing’s Olympic Forest Park on May 20th. At the event his firm showed off fancy kit that it says it is developing, including solar technologies for the cars of the future.

As Mr Li was waxing lyrical in the Chinese capital, something astonishing was happening in Hong Kong to Hanergy Thin Film Power Group, the listed subsidiary of his privately-held Hanergy Group. Possibly spooked by Mr Li’s failure to attend the company’s annual shareholder meeting, investors dumped its shares. The company, which the previous day had been worth about $40 billion, had lost almost half its value before regulators stepped in and halted trading. On one estimate, Mr Li saw about $14 billion of his personal fortune vanish in a few hours.

Hanergy is but the latest Chinese Icarus to fly too close to the sun. Suntech, a Chinese solar-energy pioneer, rose to become the biggest clean-energy firm in the world. Its boss, Shi Zhengrong, became the richest man in the China. But thanks to a global downturn in the industry and alleged financial improprieties at the firm, it went spectacularly bust in 2013.

Then, Hanergy shot from obscurity to capture the title of world’s biggest clean-energy firm (Mr Li at one point was also reckoned to be China’s richest man). From last September up until their collapse on Wednesday, its shares rose fivefold. Its market valuation eclipsed those of Tesla and Twitter. Mr Li became a celebrity in China, and political functionaries, including Xi Jinping before he became China’s president, visited his firm’s facilities.

On May 21st Hanergy issued a brief statement insisting the firm and its management had done nothing wrong, saying that the firm was operating normally and promising that it remained “full of confidence”. The same day, shares in two units of Goldin, a Hong Kong finance and property group, fell by almost half. Hanergy recently appointed one of the Goldin units as a financial adviser, though the relevance of this link, if any, was unclear as we went to press. Making money in the fiercely competitive and fast-moving solar-panel business is hard, though that hardly explains the extent of Hanergy’s share-price collapse. But a number of awkward questions have been raised about the firm; it was reported this week that regulators in Hong Kong have started studying it.

For one thing, the listed firm’s murky relationship with its unlisted parent group has long raised eyebrows. The listed firm supplies manufacturing equipment used to make solar cells. It also acquires such cells and uses them in solar farms it promotes as a project developer. Most of these transactions, however, have been with its parent. Jenny Chase of Bloomberg New Energy Finance, a research outfit, estimates that nearly all of the listed firm’s revenues from 2011 up to the first half of 2014—some $1.9 billion—came from its parent company, at profit margins topping 45%. In March the firm claimed that only about 60% of its revenues now came from its parent company, but questions have been raised about whether the sources of some of the remaining revenues are independent entities or if they are also related parties. The firm insists its actions have not breached any rules for related-party transactions.

An analysis by the Financial Times in March found that much of the daily increase in the listed firm’s share-price rise was due to unusual activity during the final minutes of each day’s trading in Hong Kong. This is of particular concern given that the free float in the firm’s shares is quite small (since Mr Li controls nearly three-quarters of it).

Hanergy’s future as a public entity is clearly in doubt. If regulatory action does not prove the death knell for the firm, then investor sentiment—short-sellers have had it in their sights for months—might do the trick. Mr Li’s absence from his own annual meeting was explained away by one insider as the boss choosing instead to attend the event in Beijing as part of his firm’s “corporate social responsibility” activities. Investors will surely be wondering who, if anyone, has been looking after the management’s fiduciary responsibilities.