Left Hand Reduces Holdings, Right Hand Pledges as Collateral: "Silicon Industry Leader" Pursues Self-Rescue with 5.8 Billion Yuan Capital Increase

What potential risks are implied by AI, actual controller’s share reduction, and pledge activities?

On March 6, Hesong Silicon Industry (SH: 603260) announced a private placement to raise funds, intending to issue no more than 355 million A-shares to no more than 35 specific investors, raising up to 5.8 billion yuan. Of this, 4.1 billion yuan will be used for the Shanshan Silicon-Based New Materials Industrial Base’s 8×75MW back-pressure unit project (Phase I) (hereinafter referred to as the “Back-Pressure Unit Project”), and the remaining 1.7 billion yuan for working capital and repayment of bank loans.

The total investment in the Back-Pressure Unit Project is 5.728 billion yuan. It is a cogeneration facility aimed at cost reduction through coal-electric integration. Hesong Silicon Industry states that the electricity, steam, synthesis gas, tar, and other products generated can form an efficient, closed-loop consumption network within the entire industry, maximizing resource value.

This investment decision seems sound; lower costs mean stronger market competitiveness. However, for Hesong Silicon Industry, which faces enormous debt pressure and high leverage, continuing to push projects during industry downturns could lead to even greater future risks.

It is noteworthy that about one-third of the funds raised will be used to replenish working capital and repay bank loans, indicating significant financial pressure. Given that the company’s short-term debt crisis has already begun to surface, whether this private placement will be recognized by the capital market and regulators remains uncertain.

Excessive Expansion Leaves a Mess

To build the “most complete silicon-based full industry chain in the world,” Hesong Silicon Industry conducted two rounds of private placements from 2021 to 2023, raising a total of 9.5 billion yuan. The company launched 11 expansion projects with a total investment exceeding 80.5 billion yuan, accounting for about 90% of total assets. Among these, investments related to photovoltaic integration reached 63 billion yuan, involving polysilicon, monocrystalline silicon rods, wafers, cells, modules, and auxiliary industries such as welding strips, frames, encapsulation films, and glass.

At that time, the photovoltaic industry was booming, and expansion was sweeping across the sector. Unfortunately, by the time Hesong Xinjiang Central Photovoltaic Integration Industrial Park Project (including an annual production of 200,000 tons of high-purity polysilicon, 20GW of photovoltaic modules, and 1.5 million tons of photovoltaic glass) reached mass production of its first line in February 2024, the industry had already entered a winter. Silicon wafers, cells, and modules were suffering losses, and polysilicon prices quickly inverted cost advantages.

Hesong Silicon Xinjiang (Shanshan) Silicon-Based New Materials Industrial Base

In Q2 2024, Hesong Silicon Industry only sold 1,770 tons of polysilicon, generating revenue of just 77.19 million yuan. Since then, until the end of 2025, the company has not disclosed further revenue data. Hesong Silicon Industry explained that the produced polysilicon shifted from external sales to internal use.

In reality, much of the products from aggressive capacity expansion turned into inventory. By the end of 2024, Hesong Silicon Industry’s inventory reached 9.509 billion yuan, accounting for 10.48% of total assets at that time. The company stated that this was mainly due to the commissioning of some photovoltaic products, leading to increased inventory. The decline in these inventories caused the company to incur losses exceeding 1.1 billion yuan in the first three quarters of 2024–2025.

To clear inventory, Hesong Silicon Industry has repeatedly announced bids for multiple photovoltaic projects in Xinjiang at prices below industry association cost guidance since October 2024. Notably, the China Photovoltaic Industry Association (CPIA) criticized the low-price bidding behavior of the China Power Bortala project as a typical case. Recently, Hesong Silicon Industry was also reported to have used module products as debt repayment, with module prices as low as 0.53 yuan/W to 0.6 yuan/W.

In 2025, Hesong Silicon Industry plunged into massive losses. On January 31, it announced an expected loss of 2.8 to 3.3 billion yuan for 2025, marking its first annual loss since 2012.

The reasons for the losses include a significant contraction in demand and falling prices in the industrial silicon and organosilicon markets, but mainly stem from issues in the photovoltaic segment. Hesong Silicon Industry stated: “The polysilicon market is gradually recovering under the combined effects of policies and market forces, but still faces challenges such as short-term demand deficiency and high inventory. Compared to 2024, in 2025, the company’s photovoltaic business was affected by the shutdown of polysilicon production lines and low utilization rates of module production lines, resulting in substantial idle losses and operational deficits.”

Hesong Silicon Industry also said that, based on these major changes in the photovoltaic business, it conducted impairment tests on related long-term assets and recognized asset impairment provisions of about 1.1 to 1.3 billion yuan.

High Debt Risks Exposed

Years of reckless expansion have placed Hesong Silicon Industry under enormous financial pressure.

By 2023, the company’s construction-in-progress reached 38.2 billion yuan, exceeding its fixed assets of about 22.4 billion yuan. By the end of Q3 2025, fixed assets had risen to approximately 31.3 billion yuan, but construction-in-progress remained high at 35.7 billion yuan.

As of the end of Q3 2025, Hesong Silicon Industry’s asset-liability ratio was 62.89%. During the same period, its non-current liabilities due within one year amounted to 6.649 billion yuan, plus short-term loans of 4.97 billion yuan and notes payable of 593 million yuan, totaling short-term liabilities of 12.212 billion yuan. Meanwhile, the company’s cash and cash equivalents were only 1.142 billion yuan.

According to the mid-year report of 2025, Hesong Silicon Industry also owed suppliers up to 13.7 billion yuan for engineering equipment.

Faced with enormous debt pressure, Hesong Silicon Industry has begun various self-rescue measures.

In February 2025, it announced plans to issue no more than 4 billion yuan of asset-backed securities (ABS) to revitalize existing assets and expand financing channels. However, after approval at the shareholders’ meeting, no further progress has been reported, raising doubts about whether it received approval from the Shanghai Stock Exchange.

Meanwhile, the actual controller Luo Liguo and his children have been raising funds through guarantees, equity pledges, and other means. By the end of 2025, Hesong Silicon Industry and its subsidiaries had a total external guarantee balance of 20.51 billion yuan, accounting for 62.43% of the latest audited net assets attributable to shareholders.

As of March 7, 2026, Hesong Silicon Industry’s controlling shareholders Hesong Group and affiliated persons Luo Liguo, Luo Yi, and Luo Yedong held a combined 71.86% stake in the company, with 386.585 million shares pledged, representing 45.50% of their holdings and 32.70% of the total share capital.

Chairman Luo Liguo

It is noteworthy that Luo Liguo’s family continues to reduce holdings through Hesong Group for cashing out.

Hesong Group is the family enterprise of Luo Liguo. Tianyancha shows that Hesong Group currently has only three shareholders: Luo Liguo’s son Luo Yedong, daughter Luo Yi, and Luo Liguo himself, holding 57.53%, 24.93%, and 17.72% respectively. Hesong Group is also the largest shareholder of Hesong Silicon Industry, previously holding 41.16% before reducing.

Hesong Silicon Industry’s announcement indicates that between February 11 and March 4, 2026, Hesong Group sold 18.4321 million shares on the secondary market, cashing out over 900 million yuan. The company stated that this reduction was due to its own funding needs.

Notably, this is not Hesong Group’s first reduction. In August 2025, Hesong Group transferred 60 million shares (5.08% of the total) to individual investor Xiao Xiugen via agreement transfer, netting 2.634 billion yuan.

These two sales have netted Hesong Group a total of 3.534 billion yuan. As of now, Hesong Group still holds 39.61% of Hesong Silicon Industry.

Author’s note: Personal opinions only; for reference.