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PE-backed China Forestry expects 1H loss

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China Forestry Holdings, which counts The Carlyle Group and Partners Group among its investors, has warned that it is expected to post a loss for the first half of 2011. The Hong Kong-listed company said earlier this year that an investigation into alleged accounting irregularities was having a negative impact on business, Reuters reported.

The company reported a net profit of RMB429.3 million ($66.3 million) for the first six months of 2010. However, in January the company said its auditors had identified possible irregularities in the audit process for the fiscal year ending December 31, 2010. Following an investigation, the Securities and Futures Commission took steps to sue Li Hang Chun, China Forestry's CEO, and obtained an injunction to freeze up to HK$398 million ($51 million) of his assets.

In March Standard & Poor's downgraded China Forestry's credit ratings to "CC" from "B+" on the grounds that the firm's financial profile and business sustainability had substantially weakened.

Carlyle currently holds approximately 11% of the Beijing-based forestry plantation operator, which it first invested in three years ago through its Carlyle Asia Growth Partners III. The private equity firm's initial $40 million investment secured a 12.5% stake, and it has reportedly since injected more. Partners Group currently holds around 5.5%.

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