China Forestry Faces Bond Coupon Deadline Amid Audit Delays

China Forestry Holdings Co., a timber producer backed by private equity firm Carlyle Group LP, faces a payment deadline on its U.S. dollar bonds today as it seeks more time to audit its books and complete a debt buyback.

The company must pay the overdue half-yearly 10.25 percent coupon on $180 million of November 2015 securities to avoid a default, according to a May 16 Hong Kong stock exchange filing. A one-month grace period expires today. China Forestry paid the previous coupon in November after a similar delay.

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

The specter of default serves as a reminder that companies in emerging markets may not always employ the best corporate governance and accounting standards. Since discovering financial irregularities in early 2011, China Forestry has only been able to account for less than 1 percent of sales, it said in April 2012. Sino-Forest Corp., once China’s largest timber grower, defaulted on its dollar bonds before filing for bankruptcy in March last year after short-seller Muddy Waters LLC said it overstated its timber holdings.

China Forestry has no further information to add to past announcements, citing stock exchange restrictions, Agnes Suen, a Hong Kong-based external spokeswoman for the company at Hill & Knowlton Inc., said in an e-mail today. Three phone calls to the logger’s offices in Beijing weren’t answered.

‘Slower Growth’

Its 2015 bonds dropped 0.125 cents to 32.75 cents on the dollar as of 3:28 p.m. in Hong Kong, Bloomberg-compiled prices show, and have lost 7.1 percent this year through June 13. The notes fell 3.4 percent in 2013.

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

“Given China’s economy is no longer developing at double-digit rates of growth and has entered a mature stage featuring more robust but slower growth, the market demand for wood products will still be supported by all kinds of infrastructure projects,” the company said in its interim 2013 report. “The group is cautiously optimistic about the future of the forestry industry.”

China Forestry has accumulated 5.47 billion yuan ($881 million) in losses since Dec. 31, 2010, according to company accounts.

Carlyle Stake

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.

China Forestry’s stock was suspended from Hong Kong trading in January 2011.

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