Workers at Hareon Solar Technology Co., Ltd (SHA:600401)’s subsidiary Jiangyin Xinhui Solar Energy Co., Ltd. have gone on strike on June 15th over wage disputes and the indefinite operation suspension of its solar module factory. The strike, one of several among Hareon’s production bases, is another reflection of Hareon’s financial difficulties in a global market wrecked by overcapacity and exacerbated by the EU’s introduction of punitive tariffs against Chinese-made solar panels. The sensibility of the company’s continued expansion and pivot into power plant development under the circumstance is also called into question.
Strikes at Hareon’s production facilities
The strike at Hareon’s Xinhui subsidiary on June 15th was sparked by the company’s recent notice to its workers, stating that operation at Xinhui’s module manufacturing facility was to be suspended and the workers were to be put on leave indefinitely. The resumption of operation was “to be announced at a later date.”
According to staff at Xinhui, the notice is the final straw following two months of nonpayment of wages and recent measures introduced by the company to increase working hours with no additional compensation.
Prior to the strike, workers at the factory were asked to choose between either working two more hours a day (effectively ten daily working hours) without weekends and maintaining their current level of remuneration of 3,000 RMB per month, or maintaining their current working hours (8 hours a day with weekends), with a decrease in wages to 1,200 RMB per month, a policy that proves largely unwelcome among the workers and one that has resulted in a wave of resignations.
Lu Keping, board chairman of Jiangsu Sunshine Co., Ltd (SHA:600220), which has the majority stake in Hareon, was at the scene of the strike to appease and negotiate with the workers. It was revealed by a company insider that the current plan is to pay off the workers’ April wages by June 17th, and May wages by June 28th.
The Xinhui subsidiary is not the only one among Hareon’s production bases to have experienced payment delays. Production bases in Huangtang, Taicang, Hefei and its headquarters are all having similar occurrences to varied extents. According to a staff member at the Huangtang base, “As of yet, April wages have not been completely paid off. The two months before [June], only 80% of the wages have been paid off, and they were paid in three installments.”
Heavy Losses at Xinhui and Hareon
The widespread wage delays and labor dispute across Hareon’s manufacturing facilities are the latest reflections of Hareon’s difficulties in reigning in its losses and turning over profits.
Back in 2011 and early 2012, Xinhui was the crown jewel of Hareon’s production bases, with an annual investment of 2.1 billion RMB from Hareon in 2011 to expand its solar module production capacity to an expected 625 MW per year. An additional 200 million RMB was granted in 2012 for the reconfiguration of its solar cell and module production lines, which were the combined total of Hareon’s investments in its other production bases.
However, the investment has not quite paid off. Xinhui’s largest investment resulted in nothing but the largest loss among Hareon’s production bases in 2012 at a whopping 105 million RMB. Solar module production capacity has not grown nearly as fast as projected - during 2012 the increase was only 5%.
Hareon reported another heavy loss in Q1, 2013, with 143 million RMB loss in revenue, 9.3 billion RMB in debt, and debt-asset ratio reaching 72.49%.
According to a company insider at Hareon, another significant reason for Hareon’s seeming abandonment of the Xinhui arm is that production bases in Hefei and Taicang have both received generous subsidies from their respective local governments in the tens of millions of RMB, making these bases more appealing choices for module production, especially given Hareon’s current need to cut costs.
Hareon’s Continued Expansion
Adding to Hareon’s financial strain is the company’s heavy-handed and ambitious ongoing expansions despite the fact of tightening cash flow.
Hareon announced on May 22nd its plan of new grid-connected PV power plant projects with a total capacity of 190MW, an investment valued at 1.942 billion RMB, which is jointly funded by the company’s own capital and bank loans.
Previously, in 2012, Hareon also completed the construction of five power plant projects in Italy and Bulgaria with a total capacity of 103.76 MW. Domestically, the company’s total investment in ongoing power plant projects has reached 299MW.
The company, however, is showing every sign of punching beyond its capital weight. In Hareon’s Q1 report, the company’s current monetary capital was close to 2 billion RMB, but its short-term and long-term loans have reached 4.2 billion RMB, on top of 3.8 billion RMB in unpaid accounts and notes payable. In addition, Hareon is still a few billion RMB short in its investment in these projects.
Returns from Hareon’s power plant projects, on the other hand, are slow to come. According to an industry insider, the profit rate of solar power plant projects has not reached 3%.
Speculation of Hareon’s 1% vs. 99% Issue
Another widespread speculation among Hareon’s staff as to the reasons for wage delays is that Hareon is prioritizing bonus payments to its shareholders over the employees’ wage payment.
No representatives of Hareon or China Sunshine have given verification of such a claim.
When it first went public, Hareon made a promise to its shareholders of profit guarantee and cash compensation should the company fail to reach the profit projection. Honoring this commitment, in 2012 China Sunshine has had to pay out 500 million RMB in cash compensation. The money was generated by Hareon on the stock market on the back of its promise to give 7.4 RMB in cash bonus to every 10 stocks sold.
To honor its promised profit gain this year, Hareon needs an annual profit of 528.58 million RMB. With an estimated Q2 loss even bigger than that of Q1, Hareon and China Sunshine seem destined for another round of desperate cash rallying at the end of the year.
