Beijing-based China Forestry Holdings plans to negotiate with investors to restructure outstanding debt after missing payment deadline on US$180M of Nov. 2015 notes; Carlyle Group-backed company says it is considering 'various options' with advisers

June 17, 2014 () – China Forestry Holdings Co., the timber producer that defaulted on $180 million of U.S. dollar- denominated bonds yesterday, said it will negotiate with investors to restructure its outstanding debt.

The Carlyle Group LP-backed company is considering “various options” with advisers after missing a half-yearly 10.25 percent coupon on its November 2015 notes, it said in a Hong Kong stock exchange filing late yesterday. While the non- payment constitutes an event of default, the logger hasn’t received a demand for repayment from the bonds’ trustee, according to the statement.

Beijing-based China Forestry will now consult with bondholders on the notes’ outstanding principal and accrued interest, according to the filing. The default occurred after a one-month grace period expired as more time was sought to audit its books and complete a debt buyback plan. Since discovering financial irregularities in early 2011, the company has only been able to account for less than 1 percent of sales.

“The surprising thing to me is that there are still questions regarding financial reporting and transparency, and regarding forbearance, default and liquidity,” David Tawil, co- founder of New York-based hedge fund Maglan Capital LP, said by e-mail June 16. “It goes to show you that, even with the involvement of a reputable investor like Carlyle, fidelity issues abound in connection with companies in emerging markets and China.”

LDK Solar, Suntech

Among China’s recent dollar-bond defaults, LDK Solar Inc. failed to repay $21.1 million to its noteholders in April 2013 and Suntech Power Holdings Co. reneged on $541 million of debt a month earlier, Bloomberg-compiled data show. Sino-Forest Corp., once China’s largest timber grower, defaulted on dollar bonds before filing for bankruptcy in March last year after short- seller Muddy Waters LLC said it overstated its timber holdings.

China Forestry’s 2015 bonds were little changed at 32.875 cents on the dollar in Hong Kong yesterday, Bloomberg-compiled prices show, having lost 20.3 percent this year.

“I wonder what recourse the bondholders have,” said Tawil. “From the previously delayed and eventually paid coupon, the bondholders either aren’t very organized, or they don’t have many easily accessible options.”

The company published interim accounts for the period to June 30, 2013 on Sept. 12. It’s sought to delay issuing full- year accounts three times this year, stock exchange filings show. Crowe Horwath (HK) CPA Ltd. was hired as auditors in January 2012 after KPMG LLP resigned.

Suspension, Losses

China Forestry has accumulated 5.47 billion yuan ($879 million) in losses since Dec. 31, 2010, according to company accounts. Its stock was suspended from Hong Kong trading in January 2011.

“The nature of their business requires a lot of capital for harvesting and trading,” Johnson Ng, an analyst in Hong Kong at Standard & Poor’s, said by phone June 13. “We think they’ll face difficulty in getting financing support, especially against the backdrop of accounting issues.”

Carlyle Group owns about 11 percent of China Forestry’s equity, according to Bloomberg-compiled data based on 2012 filings. The Washington-based firm remains a shareholder, Hong Kong-based spokeswoman Tammy Li said by e-mail June 14.

The logger last month extended an offer to buy back its 2015 notes for the sixth time since November, in an effort to reduce its annual interest expense, and now the deal expires June 24. It’s received acceptances from investors holding $100.56 million in face value, or 65 percent of the securities it doesn’t already own, according to a May 23 exchange filing, short of the 80 percent required.

To contact the reporter on this story: David Yong in Singapore at To contact the editors responsible for this story: Katrina Nicholas at Chris Bourke

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