Chaori Solar announces transfer deal

Shanghai Chaori Solar Energy Science & Technology Co (Shanghai Chaori), a Shenzhen-listed solar firm, revealed Thursday that it had recently reached an equity transfer agreement with a State-owned company, a development which may help the mainland debt market maintain its default-free record.

Two of Shanghai Chaori's major shareholders - Ni Kailu, the chairman of the company, and his daughter Ni Na, who jointly own nearly 44 percent of the company - have signed an agreement of intent on an equity transfer deal which would give Qinghai Muli Coal Development Group Co (Muli Coal) a 35-percent stake and majority ownership rights in the embattled solar company, according to the filing it made to the Shenzhen Stock Exchange Thursday.

This news is expected to sooth some of the concerns held by Shanghai Chaori's debt holders who had been worrying that the company could default on its bonds after it announced on December 29 that it had failed to repay 380 million yuan ($61.1 million) in overdue bank loans and owed 90 million yuan to three suppliers. This March, the company is scheduled to pay the first-year interest on the 1 billion yuan in corporate debt it offered last year.

Yet, there are still several eventualities which could block the deal's finalization, the National Business Daily pointed out Thursday. For instance, since Muli Coal is wholly owned by Qinghai State-owned Assets Investment Management Co, the transfer is subject to the approval of authorities managing local State-owned assets. Moreover, Ni and his daughter are not allowed to sell their stakes until the 36-month lock-out ban on stock trading by major shareholders expires for the two on November 18 this year.

"It is still not clear whether the agreement is a result of government-backed efforts to rescue the near-bankrupt company or not," a bond analyst at a Shanghai-based securities company, who asked to remain nameless, told the Global Times Thursday. "If the deal is cleared, then debt default will again be averted from the Chinese market."

"But a default-free market is naturally unhealthy and immature as investors will ignore risk under the assumption that the government will always step in to prevent default," he said.

Also in Thursday's filing, Shanghai Chaori said that its Shenzhen-listed shares and bonds which have been suspended from trading since December 20 will resume trading Friday. However, in light of the company's recent warning of a net loss for 2012, following its loss in 2011, as well as its ongoing financial and production problems, the company's shares will be put under special treatment (ST).

If Shanghai Chaori reports a loss for 2012, its bond will be pulled from trading on the exchange, according to bond listing rules from the Shenzhen Stock Exchange.