Logging firm's chief sued over share sale
The Securities and Futures Commission is suing the chief executive of mainland company China Forestry in an attempt to freeze the proceeds of a questionable share sale he carried out just days before the company admitted its auditors had found possible accounting 'irregularities'.
China Forestry, which is one of the mainland's largest logging firms and counts American private equity giant Carlyle Group as its second-biggest investor, said auditors KPMG had queried its accounts on January 26 but did not disclose further details. The stock exchange then halted trading in its shares.
Chief executive Li Hanchun announced he was selling a 3.9 per cent stake worth HK$398.65 million in China Forestry on January 13. Standard Chartered arranged the share sale, which was completed four days later.
The SFC wants the court to freeze Li's Hong Kong assets up to the value of HK$398 million.
The securities regulator is also seeking to prevent Li from 'dealing in the listed securities of China Forestry Holdings whilst in possession of unpublished information about accounting irregularities at the company', according to its writ.
Spokesmen for China Forestry and Li could not be reached. An SFC spokesman declined to comment. A Hong Kong spokesman for Standard Chartered did not respond to an e-mail.
Li is not a well-known figure on the mainland or in Hong Kong, or a founding director of China Forestry. Just 35 years old, he joined the company in 2007.
China Forestry's IPO prospectus said that Li's duties were 'dealing with public relationship [sic] and regulatory matters'.
The company was founded by chairman Li Kwok Cheong, a self-made entrepreneur who started out as a tobacco trader in Shanxi province and who remains the company's largest shareholder with a 53 per cent stake. Li Kwok Cheong is not named in the SFC's writ.
China Forestry listed on the Hong Kong Stock Exchange in December 2009, raising HK$1.55 billion. It boasted a star-studded cast of Wall Street and City of London luminaries as its advisers and investors.
Swiss Bank UBS, which declined to comment, and British stockbroker Cazenove, whose Asian business has since been bought by Standard Chartered, sold China Forestry's IPO to investors. The Carlyle Group, which boasts assets worth US$100 billion, bought into China Forestry before its listing and still owns 11 per cent of the logging company.
Someone with direct knowledge of the situation said the buyout house did not buy any of the shares Li Hanchun sold on January 17. Carlyle declined to comment.
In its January 26 statement, China Forestry disclosed that: 'During the audit process in respect of the financial year ended 31 December 2010 currently under way, possible irregularities have been identified by KPMG.'
It added that 'duties of persons suspected to be involved in the possible irregularities have been suspended', without disclosing their identity.
Debt ratings agency Moody's downgraded China Forestry's bonds after that statement. The bonds plunged in value to a price representing 55 cents on the dollar, Bloomberg reported on January 28.