Forestry operator makes bond buyback bid
Timber firm China Forestry is offering to buy back US$120 million worth of its bonds from investors.
The company, whose shares were suspended from trading in late January, shortly before former chief executive Li Hanchun was detained on the mainland for alleged embezzlement, has been under pressure from bondholders to buy them out since the situation became public.
In February, Hong Kong's Securities and Futures Commission won a court order freezing assets Li held in the SAR, including HK$398 million he had from a sale of China Forestry shares. That followed an announcement by the company's auditor, KPMG, that there were 'irregularities' in the accounts.
China Forestry detailed those irregularities in its full-year results announcement in May, when it revealed that Li, who left the company in February, had falsified logging permits and provided KPMG with false bank statements. The company slashed the value of its plantation assets by 2.1 billion yuan (HK$2.52 billion), and revealed a 2.7 billion yuan net loss.
Just after those results, HSBC bond analyst Mary Ellen Olson wrote: 'We would not be surprised by a bondholder push to cash out.'
China Forestry is offering to buy back US$120 million of a US$300 million bond due in 2015. It will also raise the interest payment on the bonds it does not buy out from 7.75 per cent to 10.25 per cent.
The company has offered to raise the interest payment in return for being allowed to raise US$210 million additional debt. Under the terms of its 2015 bonds, China Forestry is permitted to raise only a further US$10 million.
The bonds, which fell as low as 55 cents on the dollar following the news of accounting irregularities, have recovered steadily as investors increasingly anticipated a buyback by the company.
They closed at 81 cents on the dollar on Thursday, rising to 92 cents yesterday after the buyback was announced.
Jeremy Amias, founder of Hong Kong-based debt broker Amias Berman, said the buyback offer was a positive move by the company as it 'sends a strong signal there really is cash there'.
China Forestry said in its 2010 results statement in May that it had more than US$330 million of cash. But KPMG was unable to sign off on the accounts.
'There were no practicable audit procedures that we could perform to satisfy ourselves that the information and documents presented to us for the purpose of our audit are complete and accurate in all material respects,' the accountant wrote in China Forestry's annual report.
The ranking China Forestry claims among the mainland's plantation forest operators, according to its website