Hong Kong regulator goes after CEO in jail
A Hong Kong court has given the Securities and Futures Commission permission to serve a lawsuit on former China Forestry chief executive Li Hanchun, currently being detained on the mainland.
China Forestry - one of the nation's largest logging firms - said this week that Li had been arrested on the mainland for allegedly embezzling more than 30 million yuan (HK$35.5 million). He was relieved of his post just under three weeks ago.
Mr Justice Andrew Chung On-tak granted leave to serve legal papers outside Hong Kong after the securities watchdog made an application in the Court of First Instance yesterday.
The judge will allow it to serve the papers on Li and Top Wisdom Overseas Holdings, a company wholly owned by him, in the British Virgin Islands, the SFC said.
The SFC alleged in the proceedings that Li and Top Wisdom engaged in insider dealing in relation to the sale of 119 million shares of China Forestry through a share placement on January 12. The regulator asked for permission to amend the summons it had filed against Li and Top Wisdom and to continue a temporary injunction it had earlier obtained.
The judge granted leave for the SFC to amend the proceedings and that interim orders freezing HK$398 million held by Li and Top Wisdom continue.
The securities regulator also sought to prevent Li from 'dealing in the listed securities of China Forestry Holdings while he is in possession of unpublished information about accounting irregularities at the company', its writ said.
The SFC must rely on the mainland authorities to deliver the papers to Li, who was dismissed by China Forestry on February 14.
Analysts said that the lawsuit would hurt the company, which has been listed on the Hong Kong stock exchange for 14 months, and hinder any efforts to raise capital.
China Forestry, which counts private equity firm the Carlyle Group as a shareholder, raised HK$1.55 billion in an initial public offering in December 2009.
The logging company said on Thursday that it had 'sufficient financial resources to pay off all existing loans' and would be able to carry on its operations.
These loans and liabilities included the US$300 million bond it issued last year, along with other payables and expenses.
Although there is no immediate risk of default, rating agency Moody's has downgraded China Forestry's rating to Ba3 from B1 following the announcement of possible irregularities identified by its auditors.
The company had a total of 2.38 billion yuan in cash but Standard & Poor's said that amount would be just enough to cover the outstanding principal of the US$300 million bond, which will mature in 2015, and other payables and accrued expenses.
Trading of the stock has been suspended since January. But credit traders said the bond was traded down to 55 US cents on the dollar at one point in the high-yield US-dollar debt market following the suspension on the Hong Kong stock exchange.
Prices of the bond have since rebounded back to 70 cents to 80 cents on the dollar over the last few days.
A credit analyst said that China Forestry bond prices would remain volatile in the coming weeks.
'We don't have specific information on its assets such as logging rights and harvesting rights and we don't know what the irregularities are,' the analyst said.
Money grows on trees
China Forestry went public in December 2009, raising this amount in HK dollars: $1.55b