The Chinese polysilicon manufacturer said it only discovered this month that the stock in its solar project division – which it had pledged to secure a $60 million loan which GCL says was never delivered – had been claimed by the lender a year ago, on the grounds the finance agreement had been breached.

It never rains but it pours: It turns out GCL-Poly does not control more than half of its project development operation.

Having lost its previous auditor amid disagreement over how to deal with a payment made to a contractor for a silicon project which never materialized, GCL-Poly's new accountant has quickly been faced with the problem of determining just how much of the company's solar project development operation the polysilicon manufacturer actually owns.

GCL said on Friday, it had discovered this month it holds 865 million fewer shares in its New Energy project business than it previously thought, with the discrepancy dating back to June.

The development hinges on a dispute related to a US$60 million loan taken out by GCL business Elite Time Global Ltd on August 28, 2019. Elite Time secured the loan, from an unnamed third party, by pledging shares in the GCL New Energy business worth twice the value of the borrowings expected. The lender, GCL said on Friday, confirmed in a loan agreement on September 26, 2019 that it would supply three payments of US$16 million followed by a final tranche of US$12 million.

GCL said it transferred 865 million of the 11.9 billion shares it held in GCL New Energy to a depository broker in line with the loan agreement. The solar company, however, said it only ever saw US$2.2 million of the promised amount, which it says was handed over in February last year. In May last year, GCL said it received a letter from the lender claiming the terms of the agreement had been breached.

“The company does not accept the notice of default is justified,” said GCL-Poly on Friday, in a note to the Hong Kong Stock Exchange which continued: “and despite co mmunications with the lender regarding the outstanding amount of the loan to be funded b y the lender, and potential alternative arrangements with respect to the loan, no additional funds were advanced by, nor new terms agreed with, the lender.”

GCL said it contacted the unnamed depository broker which was in custody of the pledged GCL New Energy shares this month only to be told the stock had been transferred to the lender “on or around 6 June 2020” after the financer had submitted an entitlement order. GCL said it received no notice of the development when it reportedly occurred, in June, and has since “received an email from an entity claiming to be the successor entity of the lender,” confirming the stock had been forfeited.

The Chinese polysilicon maker said it is considering legal remedies in relation to the stock and that it “is of the view that it continues to control the operations of GNE [GCL New Energy] even if ownership of the pledged shares has been purp ortedly forfeited.” However, the company was forced to reveal that, as a result of the development, it holds only 49.24% of GCL New Energy's shares at the moment.

Trading in the company's stock has been suspended since the end of March because GCL has been unable to publish its 2020 accounts because of the contractor payment issue which prompted previous auditor Deloitte Touche Tohmatsu to resign. The auditor and its client were unable to agree the scope of a planned investigation into a RMB510 million (US$79.3 million) pre-payment made by the company, also in September 2019, for a silicon project which was never constructed.

The heavily-indebted poly manufacturer and solar project developer failed to settle a US$500 million senior note at the end of January, retroactively triggering a cross default of other liabilities from the end of 2020. Plans to reissue the senior notes in question are progressing through the court system of Bermuda, where the company is registered for tax reasons.

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