A fund manager under Chinese private equity firm Hillhouse Capital is being investigated by the securities regulator for allegedly unlawfully selling some equity in solar panel giant Longi Green Energy Technology.
HHLR Management, which was Longi’s third biggest shareholder with a 5.85 percent stake as of December last year, received a letter of notice from the China Securities Regulatory Commission on Nov. 8, Xi’an, central Shaanxi province-based Longi said yesterday.
HHLR plans to participate in the refinancing of securities and will lend out a total of 1 percent of shares held in Longi for a period of no longer than 182 days, temporarily bringing its holdings to below 5 percent, Longi said on March 21. HHLR’s intentions are not to pare its stake and it will not lead to a sale, it added.
The refinancing of securities is when equity holders lend their shares in listed companies to borrowers through a securities exchange at a specific rate. The borrowers return the stock by the agreed deadline and pay a corresponding fee.
HHLR’s holdings in Longi were reduced to 4.85 percent on March 31 after it lent out the shares. However, the ratio only returned to 4.98 percent after the lending period expired on Sept. 30.
This indicates that HHLR sold 0.87 percent of its equity during the lending period when its holdings were below 5 percent. However, the transaction was not declared, and the selling price and amount was not made public.
Investors are confused as to why HHLR chose not to declare that it was cutting its holdings, but rather opted to furtively sell the stake during the lending period.
"The shares the shareholder lends via the securities lending mechanism are not considered to be part of the shareholder's equity until the borrower has returned them," a expert said to Yicai. "While the holdings are less than 5 percent, the shareholder is not obliged to disclose equity sales beforehand,” he added.
"In practice, some institutions utilize the above rules to not give advance notice of the reduction of holdings. But only a minority of individual investors are left uninformed," the person said. "In my view, shareholders holding more than 5 percent of shares should be forced to disclose any sales 15 day ahead of time even if holdings are temporarily less than 5 percent or the transaction is done through a third party. "
Longi’s share price [SHA: 601012] closed up 3.5 percent at CNY24.24 (USD3.33) today. The stock has tumbled over 40 percent in value this year as the valuation of PV firms comes under greater pressure.
（Picture: Veer）
