Sino-Forest’s major shareholder proposes restructuring plan
The largest shareholder in Sino-Forest has proposed a restructuring plan for the Chinese forestry company following last week’s board announcement that a Canadian court had granted protection from creditors as it looked into sale options.
Richard Chandler Corporation, which has in the last year built up a 19.5% holding in Sino-Forest as other investors have rushed to exit the trouble-hit company, has assembled a team led by an Asian forestry expert. "Over recent months Sino-Forest's business and financial resources have continued to deteriorate in the absence of a credible business plan which addresses the significant governance, leadership, strategic, operational and financial challenges facing the company," Richard Chandler Corp. said in a statement.
Sino-Forest announced last week that around 40% of its bondholders had agreed to the creditor protection plan in order to allow time to find a buyer for the company.
Sino-Forest has been under pressure since June 2011 when short-seller research firm Muddy Waters claimed the Toronto-listed company had overstated its revenues and assets by routing funds off its books to intermediaries in order to fabricate sales transactions. Muddy Waters called Sino-Forest the "granddaddy of China RTO frauds," and the news prompted shares in the company to drop by about 80%.
The report came as a host of Chinese firms listed in North America were exposed as having falsified earnings statements. Towards the end of August, Sino-Forest's chairman and CEO resigned and three employees were suspended after the Ontario Securities Commission said the company may have misrepresented its revenue statements and exaggerated its timber holdings. Sino-Forest's board said in November that an independent investigation had found Muddy Waters' accusations to be groundless and it is now pursuing legal action against the research firm.
Sino-Forest failed to file third-quarter results on time and then received a default notice on two of its bonds after deciding against making a $10 million interest rate payment. Richard Chandler Corporation expressed disappointment at the board's decision, noting that the company "clearly has the financial strength and liquidity to meet its bond commitments."
Chinese forestry assets have been popular with private equity investors in recent years, but opaque regulation and uncertainty about ownership represent a strong challenge to investor oversight. China Forestry, a portfolio company of Carlyle Asia Growth Partners III, has field fraud accusations similar to those leveled at Sino-Forest.
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