BHP faces claims from investors

Canadian hedge fund BHP (BHP International Markets), which has grabbed much attention for taking a long-term short position on Hanergy Thin Film Power Group Limited (0566.HK), is now in a legal battle with investors.

According to the latest report by China Securities News, three minority shareholders of Hanergy who had pledged 1.2 billion Hanergy shares to BHP officially filed an application for arbitration on March 27 in the Nassau Harbour of the Bahamas, requesting BHP to immediately return their shares or compensate their losses.

According to exclusive documents obtained by the Chinese-language newspaper, in the arbitration application filed on March 27, the three investors, one of them surnamed Zhu, requested BHP to immediately return 1.2 billion Hanergy shares after arbitration award is made, or to provide $650 million and damages equivalent to the number of pledged shares multiplied by 150% of the average price of the shares over the last five trading days before their return. As of market close on March 27, the average price of Hanergy in the recent five trading days was HKD6.61, up by about 150% over the beginning of the year. This means a compensation claim of HKD11.9 billion.

According to Zhu, he and other two minority shareholders received a notice of default from BHP on February 11, 2015, which claimed that they had violated the stock collateral loan agreement signed with BHP, and thus lost the right to redeem the 1.2 billion shares pledged to BHP. According to the notice, trading in Hanergy shares was suspended for 20 days from December 20, 2013 to January 10, 2014, which has triggered the corresponding provisions of the loan agreement; meanwhile, the other investors failed to pay a certain amount of damages within two working days after the event, which constituted a breach of contract and deprived them of the right to redeem the pledged shares. However, Zhu said that the suspension does not constitute a breach of contract under the contract, according to the report by the Chinese-language newspaper.

Zhu was cited as saying that BHP never contacted them after the suspension of Hanergy stock and has been collecting interests on the loan. Thirteen months later, it suddenly claimed that they breached the contract and refused to return the shares.

Zhu and other two investors signed a stock collateral loan agreement with BHP via a Hong Kong-based agency in late November 2012 and late January 2013, respectively, under which a total of 1.198 billion shares of Hanergy (then called "Apollo Solar Energy ") were pledged to BHP at a price of HKD0.27-0.43 per share in return for a three-year loan of about $43.69 million, according to Zhu.

Zhu said that they have been paying the interest on the loan on a quarterly basis to a collecting law firm designated by BHP since they received the loan in early 2013, with the last successful payment of interest made in the first quarter of 2015.