Mandolin Fund backs trouble-hit Sino-Forest

Toronto-listed Sino-Forest isn’t the only Chinese company to have listed on a foreign exchange through a reverse merger and then run into trouble. The high-profile exposure of several frauds has prompted amateur and professional investors to scour public filings for any signs of weakness or non-compliance. Unlike most of these firms, however, Sino-Forest may have its own white knight.

Singapore-based Mandolin Fund has increased its stake in the company three times in three weeks, most recently on August 4, with the purchase of 2.7 million shares at an average price of C$6.09. It now holds 44.3 million shares in total, which equates to an 18% stake in Sino-Forest. This time last month the holding was less than 10%. Mandolin’s involvement saw Sino-Forest’s stock hit C$7.69 on July 26, a considerable gain on its June 21 nadir of C$1.99, but still down more than 60% year-to-date. the stock closed at $5.42 on August 8.

Mandolin is controlled by New Zealand-born billionaire Richard Chandler, who rose to prominence as CEO of Sovereign Group. He went on to found Orient Global, which changed its name to Richard Chandler Corporation (RCC) in 2010. The company, of which Mandolin is a subsidiary, specializes in emerging markets investments. In June, Mandolin bought a 14% stake in Sino Oil and Gas Holdings. Another subsidiary, Orchid Fund, invested in Australia’s Energy World Corp. in July.

According to its website, RCC invests in financial, social and creative enterprises. Perhaps unsurprisingly, given Sovereign’s efforts to clean up rampant fraud at SK Corp in the early 2000s, RCC is a fierce advocate of strong corporate governance. “Companies with principled leaders act with integrity, transparency and accountability in managing shareholder returns to create value for stakeholders,” it says. “Shareholders can play an important oversight role by exercising their ownership responsibilities to elect and monitor competent and ethical corporate leadership.”

Sino-Forest is therefore an interesting investment. Muddy Waters has accused the company of “stratospheric” fraud, claiming it has overstating its assets and defrauded investors by routing funds off the books through a web of intermediaries. Sino-Forest denies any wrongdoing and has asked a committee of independent directors to investigate the matter.
It remains to be seen whether RCC is required to act as an ethical white knight, as well as an economic one. 

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• Topics
• Australasia
• Greater China
• Buyout
• Richard Foyston