Bloomberg’s Christopher Donville has combed through Sino-Forest’s regulatory filings and found evidence that its senior executives have sold $83m of shares in the firm since 2006. Excerpt below, with our emphasis:
[Allen] Chan, who stepped down Aug. 28 after the Ontario Securities Commission suspended trading in Sino-Forest, sold C$3 million of stock, the filings show. Kai Kit Poon, with whom Chan founded the tree-plantation company in 1992, sold more than C$30.1 million. Chief Financial Officer David Horsley sold C$11.2 million of shares. Simon Murray, a director and also chairman of Glencore International Plc, sold $10.8 million.
Don’t call it a scorched earth policy.
The beleagured timber firm last week had trading in its shares suspended in North America, its debt downgraded by Moody’s and S&P (the latter also withdrew its ratings) and saw the resignation of its CEO, Allen Chan, after a farcical to and fro with Canadian regulators.
There is no suggestion of any wrong-doing in the share selling but regulators may look at the timing as part of their investigation. It’s rarely a good sign when it looks like there’s a concerted effort to cash-in by a firm’s management team. Moreover, in the case of Sino-Forest, it’s particularly worrying because of the noises it has made about being prevented from their desire to buy back stock.
Here’s an excerpt from the Q1 2011 earnings call, which took place on 14 June:
<Q – Jit Ming Tan [BarCap anaylst]>: Okay, understood. My last question is on your – the potential buyback of your stocks and bonds. Is there any chance that you might look into that in the near future?
<A – William E. Ardell [Then: Lead Independent Director and Chair of the Independent Committee; and now also Sino-Forest Chairman] >: It’s Bill Ardell speaking. We’ve had lots of recommendations from various people that we should be looking at share buyback and particular reference was made to a number of the directors that this is an opportunity for them to be in and buying significant amounts of shares to demonstrate strong belief in the company. And I can assure you that if we had the choice, we certainly would at this stage. But we’ve been advised by counsel that we’re unable to do so until the examination is completed. So any further discussion on share buybacks and things of that nature will have to wait until this examination is over.
<A – Allen T. Y. Chan [Then CEO of Sino-Forest, now Chairman Emeritus.]>: Yes, I will add on that. That personally I’d have done so.
Meanwhile, buying in Sino-Forest stock continued right up until the trading suspension on Friday. Richard Chandler’s Singapore-based fund acquired 1.2m shares in the firm on August 24, taking its total stake to 47,954,200 shares, or about 19.5 per cent of the company, according to the Financial Post.
Not ideal timing, really.
Perhaps trading will return sometime soon, and perhaps Chandler has spotted the bargain of the year. We don’t know.
We can, though, worry about whether Sino-Forest will be able to survive a looming liquidity crisis. As FT Tilt’s Sid Verma perspicaciously notes, despite fully redeeming the outstanding payments on its 2011 bond, the firm’s recent turmoil has hit its outstanding eurobonds:
However, this recent chain of events has dragged down the remaining outstanding conventional and convertible eurobonds, which mature in 2013 ($345m), 2014 ($399.5m), 2016 ($460m) and 2017 ($600m). At pixel time, Sino-Forest bonds due in 2017 were trading at 49 cents on the dollar from 60 cents on 11 August. At the same time, the company’s 2014 bonds were trading at 31.7 cents on the dollar, down from 64 cents on 25 August, according to Bloomberg data.
Analysts seem to think nothing yet has emerged that could trip to materially adverse event clauses in the outstanding bonds. That’s the good news in the FT Tilt post.
The bad news, as FT Tilt explains, is that there are at least three remaining liquidity issues: (1) cashflow; (2) how accessible it is to offshore creditors; and (3) whether its assets will generate enough cash.
The full post is a must read.
Related links:
Full coverage of Sino-Forest saga – FT Tilt
Sino-Forest coverage – FT Alphaville