(Adds details of proposal, background)
* SFC says Hanergy must appoint a financial adviser - source
* Says company-appointed auditor must submit "clean
* Shares suspended since May 2015
By Clare Jim
HONG KONG, Oct 7 Hong Kong's securities watchdog
will allow Chinese solar company Hanergy Thin Film,
the subject of a high-profile investigation for alleged market
manipulation, to resume trading provided it meets certain
conditions, a source with direct knowledge of the issue told
Hanergy asked the Hong Kong stock exchange to suspend
trading in its shares on May 20, 2015, after the company lost
half its $40 billion market value in just 24 minutes.
The Securities and Futures Commission (SFC) announced eight
days later it was investigating Hanergy's "affairs" and
subsequently directed the bourse to extend the suspension
The 1-1/2 year investigation into Hanergy, among the most
high-profile ever conducted by the SFC, has raised fears over
widespread market manipulation in Hong Kong, denting the city's
reputation as a global financial centre.
The SFC has told Hanergy that in order to resume trading,
the company must appoint a financial adviser to draw up and
submit a resumption proposal, the source said.
A company-appointed auditor must submit a "clean report"
signing off on the health of the company's accounts, the source
Ernst & Young, Hanergy's external auditor, has issued a
so-called "qualified opinion" on the 2015 accounts, according to
Hanergy's 2016 interim report filed with the exchange in
September. Auditors typically issue a qualified opinion when
they believe the financial information is not complete.
SFC declined to comment. Hanergy Thin Film did not respond
to calls and emailed requests for comment. The source declined
to be named because of the sensitivity of the issue.
Ernst & Young did not immediately respond to requests for
The chairman of parent Hanergy Holding, Li Hejun, was also
required to resign from the Hong Kong-listed arm as a condition
for resuming trading, the source said. Li stepped down in May.
It was unclear if Hanergy would be able to meet the
conditions, the source said.
"It'll be difficult for them to find a financial adviser
that satisfies the SFC - some major international and Chinese
banks have rejected them," the person said.
Reuters was unable to ascertain if the discussions meant the
SFC had closed its investigation.
The SFC and Hong Kong exchange are under growing pressure
from investors to speed up the resumption of suspended stocks.
Hong Kong's rules allow shares to be suspended indefinitely,
meaning investors can be trapped in bad companies for years.
The watchdog's new head of enforcement, Thomas Atkinson, is
also keen to wrap up many of the more than 1,000 investigations
the SFC opened in the years prior to his appointment in March,
said two lawyers briefed on the matter.
The Hong Kong Stock Exchange last year asked Hanergy to hand
over the accounts of its parent company before it would let the
suspended stock trade again, but Hanergy rejected the request.
The company early this year appointed China International
Capital Corp (CICC) to find a strategic investor, a move it had
hoped would shore up its finances and help its shares resume
trading, Reuters reported in March.
(Reporting by Clare Jim; Additional reporting by Michelle
Price; Editing by Kim Coghill and Muralikumar Anantharaman)