China Forestry Holdings Ltd. said Li Han Chun, its former chief executive officer, was detained by police in China for the alleged embezzlement of 30 million yuan ($4.6 million).
Li, replaced by Li Jian as CEO on Feb. 18, removed company files including sales documents of unit Kunming Ultra Big Forestry Resources Development Co., according to a China Forestry statement to the Hong Kong stock exchange today. Li Han Chun was detained by police in China’s Guizhou province on Feb. 24, it said.
Hong Kong Court of First Instance Judge Carlye Chu on Feb. 11 extended an order to freeze HK$398.2 million ($51.12 million) of assets held by the former CEO, who sold shares before the Beijing-based company disclosed accounting irregularities. Moody’s Investors Service put China Forestry’s debt on review for a downgrade on the share suspension in the city Jan. 26.
“The market’s confidence in the management collapsed with the confirmation” of Li’s detention, said Michael Tam, a Hong Kong-based analyst with South China Finance & Management Ltd. “We know nothing about the acting CEO; stock prices will drop when shares resume trading.”
Shares of the forest operator have fallen 19 percent this year, whereas Hong Kong’s benchmark Hang Seng Index is little changed. The stock will remain suspended until further notice, the company said.
China Forestry has 229,113 hectares of forests in China, and is amongst the country’s top three private operators, according to its website. Washington-based private equity firm The Carlyle Group has an 11 percent stake in the company.
Brian Zhou, a Beijing-based spokesman of Carlyle, declined to comment.
China Forestry is checking its current liabilities position and is in the process of “ascertaining the extent of documents taken away by Mr. Li Han Chun, and is seeking legal advice as to recovery of such documents,” it said in the statement.
The forest operator will be removed from the Hang Seng Composite Index from March 7 because of the prolonged suspension, Hang Seng Indexes Co. said in a Feb. 28 statement.