International investors are on the hook for billions after Hanergy Thin Film is barred from trading

Happier times.
Happier times.
Image: Reuters/stringer
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Global funds including BlackRock, Vanguard and TIAA-CREFF are sitting on billions of dollars of potentially worthless stock, after Hong Kong Stock Exchange regulators said July 15 that Hanergy Thin Film Power should not start trading again without regulatory approval—a highly unusual move that could mean the stock will not trade again.

Hanergy, the solar power firm that mysteriously skyrocketed in value over several months and then lost $19 billion in minutes on May 20, has become exhibit one for critics worried about the excess volatility and lax regulation of Hong Kong’s stock market. The company suspended its own stock from trading that day, citing an upcoming announcement that has never come.

It is unclear whether Hanergy’s shares will ever trade again. One Hong Kong securities lawyer who works on criminal cases told Bloomberg he had “never come across a case like this before,” and that the regulatory announcement appeared to be the first step in a criminal prosecution. Some value could may be salvaged for investors, though—after Hontex International Holdings’ shares were halted by Hong Kong regulators, the firm was ordered to buy back minority investors’ stakes, the Wall Street Journal noted (paywall).

While founder and chairman Li He Jun owns the lion’s share of the company—80.5% worth $16.9 billion as of May 20—institutional investors including the giant US teachers’ pension TIAA-CREF, a Quebec civil servants pension, Vanguard and other fund managers are holding hundreds of millions of shares, worth billions of dollars:

These investors likely amassed these stakes because of their exposure to exchange-traded-funds, or ETFs, which use indexes to guide investments, rather than picking individual stocks, as Reuters explained in May.

Investment giant BlackRock is the most exposed, with about $470 million worth of equity held through various funds:

Huge fund managers and the investors that are their clients are not likely to feel a direct hit from the Hanergy loss. To put this in context: BlackRock has nearly $5 trillion in assets under management, and the Quebec civil servants pension, CDPQ, has $226 billion. But the high-profile investigation of Hanergy is sure to add to the gathering questions about investing on Hong Kong and mainland China’s stock markets.