(Yicai Global) May 23 -- The controlling shareholder of waste-based power generation firm Shengyun Environment-Protection Group Co. will transfer all of his stocks to a state-owned energy investment fund to avert a debt default.

Kai Xiaosheng, former chairman of Shengyun, agreed with Sichuan-based Energy Industry Investment Group Co. on the transfer of his 13.69 percent share to the latter without disclosing the price, the Anhui-based firm said in a statement.

The company has become heavily indebted due to poor management in recent years, while pursuing rapid business expansion regardless of a track record of massive losses. Several employees and insider investors dumped related shares before the release of a disappointing earnings report.

Kai resigned as chairman and actual controller in April in wake of a brewing debt crisis, while China Chengxin International Credit Rating Co. downgraded Shengyun's long-term rating from AA- to BBB- and included it on a watchlist for further downgrades. The company has a substantial amount of overdue debts, reported CCXI, adding that the firm suffers from corporate governance problems and inadequate shareholder support.

The takeover by a powerful state-owned company will help the public firm to improve its financial status, said Shengyun.

The fund will take over Shengyun's 40 domestic waste-based power generation projects and already operational plants. The firm has promised to invest USD2.5 billion (CNY15.7 billion) in the plants in future. As for unfinished projects, Kai and Energy Industry Investment will negotiate concession agreements with local governments.

Editors: Emmi Laine, William Clegg