Sino-Forest files restructuring plan
 |
| Andy Wong/AP A Chinese man walks past a TV advertising screen by Focus Media Holding Ltd. on display near an apartment lift in Beijing Tuesday, Aug. 14, 2012. |
Vanessa Lu
Shareholders of troubled timber firm Sino-Forest Corp. would receive nothing under a proposed restructuring plan that would transfer remaining assets to creditors.
A once-mighty company with a market capitalization of $6 billion, Sino Forest is now in tatters as its former executives face fraud accusations that include overstating assets and sales in China.
Sino-Forest says it is owed $887.4 million from authorized intermediaries, who operated on its behalf in China. But half a billion dollars is owed from intermediaries in China that no longer exist, though the company insists it intends “to take all steps necessary” to collect receivables.
It filed for bankruptcy protection under Companies’ Creditors Arrangement Act in March. And its auditor Ernst & Young quit in April.
Under the restructuring plan, which will be considered by the Ontario Superior Court of Justice on Aug. 28, Sino-Forest’s assets would be transferred to a new company, owned and controlled by its creditors, who hold $1.8 billion in corporate notes.
Sino-Forest has been mired in accusations of fraud, after Carson Block and his research firm Muddy Waters accused the company last summer of being a giant Ponzi scheme. The share price plunged, and closed at $4.81 when the Ontario Securities Commission halted trading a year ago.
More than 246 million shares are outstanding, though the TSX delisted it in May.
Sino-Forest came to Canada after a 1994 reverse takeover of two shell companies, Mt. Kearsarge Minerals and a numbered company that traded on the Alberta exchange.
Reverse takeovers occur when a private company merges with a dormant or shell company already listed on an exchange, and then the new company’s board and management takes over. It means the company gets a public listing without going through the scrutiny of the initial public offering process.
In recent years, many Chinese companies have chosen this route to gain access to North American markets and overseas investors, who were keen to get in on China’s booming economy.
But now, according to The Associated Press in Beijing, many companies are reversing course and pulling out of U.S. exchanges amid intense scrutiny.
This week, Focus Media Holding Ltd., announced its chairman and private equity firms want to buy back its U.S.-traded shares and take the Shanghai-based advertising company private. The deal would value Focus Media at $3.5 billion (U.S.), according to financial information firm Dealogic.
In a sign of official encouragement, a Chinese business magazine said a state bank has provided $1 billion in loans to help companies with listings abroad move them to domestic exchanges.
The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.
Some Chinese companies say they are pulling out of U.S. markets because a low share price fails to reflect the strength of their business. Withdrawing also eliminates the cost of complying with American financial reporting rules.
Focus Media “has been seriously undervalued on U.S. stock markets” and being taken private will help to promote its “long-term strategic development,” said a company spokeswoman, Lu Jing.
U.S.-traded Chinese companies faced scrutiny after auditors for several quit and others were accused of accounting irregularities. Concerns about company finances have caused share prices to tumble, costing investors several billion dollars.
“Probably all these companies have some questionable accounting, so they may prefer to move out of the U.S., not to come under too much scrutiny,” said Marc Faber, managing director of Hong Kong fund management company Marc Faber Ltd.
Muddy Waters Research, which raised questions about Sino-Forest, accused Focus Media last year of overstating the number of its display panels and questioned acquisitions reported by the company. Focus Media denied the allegations and said independent auditors confirmed the size of its network.
This week, Muddy Waters founder Carson Block said in a statement: “The markets are far better off if a few deep pocketed investors own Focus Media instead of mutual funds and other public shareholders.”
The status of Chinese companies in the United States could be complicated by a dispute between U.S. and Chinese regulators over whether American inspectors will be allowed to examine the work of their China-based audit firms.
Washington wants auditors to hand over documentation on companies that are under investigation but Chinese authorities have barred the release of some information. If a settlement is not reached, the SEC could reject audits by China-based firms, forcing companies to find new auditors.
In May, Beijing took steps to tighten control of local affiliates of major accounting firms by issuing a requirement for Chinese citizens to head those offices.
Last year, the SEC issued an investor bulletin, warning about potential risks when investing in reverse-merger companies.
“Many companies either fail or struggle to remain viable following a reverse merger,” the bulletin said. “Also, as with other kinds of investments, there have been instances of fraud and other abuses involving reverse merger companies.”
The SEC later tightened listing rules, requiring a company to complete a one-year “seasoning period” by trading on the over-the-counter market or another regulated or foreign exchange following the reverse merger.
As well, it must file all required reports including audited financial statements, and maintain a minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange’s decision to list.
A once-mighty company with a market capitalization of $6 billion, Sino Forest is now in tatters as its former executives face fraud accusations that include overstating assets and sales in China.
Sino-Forest says it is owed $887.4 million from authorized intermediaries, who operated on its behalf in China. But half a billion dollars is owed from intermediaries in China that no longer exist, though the company insists it intends “to take all steps necessary” to collect receivables.
It filed for bankruptcy protection under Companies’ Creditors Arrangement Act in March. And its auditor Ernst & Young quit in April.
Under the restructuring plan, which will be considered by the Ontario Superior Court of Justice on Aug. 28, Sino-Forest’s assets would be transferred to a new company, owned and controlled by its creditors, who hold $1.8 billion in corporate notes.
Sino-Forest has been mired in accusations of fraud, after Carson Block and his research firm Muddy Waters accused the company last summer of being a giant Ponzi scheme. The share price plunged, and closed at $4.81 when the Ontario Securities Commission halted trading a year ago.
More than 246 million shares are outstanding, though the TSX delisted it in May.
Sino-Forest came to Canada after a 1994 reverse takeover of two shell companies, Mt. Kearsarge Minerals and a numbered company that traded on the Alberta exchange.
Reverse takeovers occur when a private company merges with a dormant or shell company already listed on an exchange, and then the new company’s board and management takes over. It means the company gets a public listing without going through the scrutiny of the initial public offering process.
In recent years, many Chinese companies have chosen this route to gain access to North American markets and overseas investors, who were keen to get in on China’s booming economy.
But now, according to The Associated Press in Beijing, many companies are reversing course and pulling out of U.S. exchanges amid intense scrutiny.
This week, Focus Media Holding Ltd., announced its chairman and private equity firms want to buy back its U.S.-traded shares and take the Shanghai-based advertising company private. The deal would value Focus Media at $3.5 billion (U.S.), according to financial information firm Dealogic.
In a sign of official encouragement, a Chinese business magazine said a state bank has provided $1 billion in loans to help companies with listings abroad move them to domestic exchanges.
The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.
Some Chinese companies say they are pulling out of U.S. markets because a low share price fails to reflect the strength of their business. Withdrawing also eliminates the cost of complying with American financial reporting rules.
Focus Media “has been seriously undervalued on U.S. stock markets” and being taken private will help to promote its “long-term strategic development,” said a company spokeswoman, Lu Jing.
U.S.-traded Chinese companies faced scrutiny after auditors for several quit and others were accused of accounting irregularities. Concerns about company finances have caused share prices to tumble, costing investors several billion dollars.
“Probably all these companies have some questionable accounting, so they may prefer to move out of the U.S., not to come under too much scrutiny,” said Marc Faber, managing director of Hong Kong fund management company Marc Faber Ltd.
Muddy Waters Research, which raised questions about Sino-Forest, accused Focus Media last year of overstating the number of its display panels and questioned acquisitions reported by the company. Focus Media denied the allegations and said independent auditors confirmed the size of its network.
This week, Muddy Waters founder Carson Block said in a statement: “The markets are far better off if a few deep pocketed investors own Focus Media instead of mutual funds and other public shareholders.”
The status of Chinese companies in the United States could be complicated by a dispute between U.S. and Chinese regulators over whether American inspectors will be allowed to examine the work of their China-based audit firms.
Washington wants auditors to hand over documentation on companies that are under investigation but Chinese authorities have barred the release of some information. If a settlement is not reached, the SEC could reject audits by China-based firms, forcing companies to find new auditors.
In May, Beijing took steps to tighten control of local affiliates of major accounting firms by issuing a requirement for Chinese citizens to head those offices.
Last year, the SEC issued an investor bulletin, warning about potential risks when investing in reverse-merger companies.
“Many companies either fail or struggle to remain viable following a reverse merger,” the bulletin said. “Also, as with other kinds of investments, there have been instances of fraud and other abuses involving reverse merger companies.”
The SEC later tightened listing rules, requiring a company to complete a one-year “seasoning period” by trading on the over-the-counter market or another regulated or foreign exchange following the reverse merger.
As well, it must file all required reports including audited financial statements, and maintain a minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange’s decision to list.
No comments:
Post a Comment
Comments always welcome!