April 2, 2012 5:23 pm

Sino-Forest investor to push restructuring

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Richard Chandler, the New Zealand billionaire and biggest shareholder of Sino-Forest, has hired a team to plan a rescue restructuring of the Chinese timber group after it filed for bankruptcy protection last week.

Richard Chandler Corporation, his investment vehicle, said on Monday that it had assembled a group including David Walker, an expert in the Asian forestry sector, to lead its proposal for the restructuring of Sino-Forest.

“Sino-Forest faces a range of complex problems,” Mr Walker said. “A successful restructuring which builds a long-term sustainable plantation business will take a considerable amount of time and a strong team to drive the process.”

However, market participants were sceptical about whether Mr Chandler would be able to prevent his 18 per cent equity stake in Sino-Forest from becoming worthless. “There’s not a lot he can do,” said Owen Gallimore, credit strategist at ANZ.

On Friday, a Canadian court declared Sino-Forest insolvent and approved a plan to transfer ownership of the company to its lenders under the Companies Creditors Arrangement Act, the equivalent of a Chapter 11 bankruptcy filing.

Under the court order, Sino-Forest has won temporary protection from the holders of its $1.8bn of bonds while the company attempts to find buyers for its assets.

The trouble is that the market has placed a low value on Sino-Forest’s assets since the company has not issued audited financial statements since the second quarter of 2011.

Sino-Forest’s bonds were trading at just 25 cents on the dollar on Monday, down from 100 cents a year ago. If the debt continues to trade at this level, Sino-Forest’s shareholders including Mr Chandler will see their equity wiped out.

Mr Chandler acquired his stake in Sino-Forest in August, two months after Carson Block, the US shortseller, accused the company of “stratospheric fraud” and just weeks before Canadian regulators halted trading in the company’s shares. Sino-Forest last week began legal proceedings against Mr Block, accusing him of defamation.

Richard Chandler declined to elaborate on his plans for the company. Market participants speculated that he could submit an alternative restructuring plan to bondholders with more favourable terms for shareholders, or even launch a bid for the company by injecting new equity.

There have been rumours that Mr Chandler has been buying some of Sino-Forest’s bonds to give him a seat on both sides of the negotiating table.

Mr Walker is the founder of Kauri Capital, a Singapore-based group that advises on transactions in the forestry sector. According to Kauri’s website, Mr Walker has a 15-year relationship with Allen Chan, Sino-Forest’s founder, and helped the Chinese company on its strategy and acquisitions.

FTI Consulting, monitor of Sino-Forest’s bankruptcy proceedings, said in a court filing last week that the Muddy Waters allegations and the subsequent events had left Sino-Forest’s business “paralysed and unable to continue”.

“Sources of outside funding for expansion have dried up, sales have been halted while the business continues to burn money necessary to its operations,” FTI said. The monitor added there was likely to be a “limited landscape of potential buyers” for Sino-Forest, given its size and the “issues surrounding the business”.

As of March 2, Sino-Forest had $392m of cash, of which $185m was held in bank accounts outside the Chinese mainland.

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