Sino-Forest trade halt extended to April 16 by OSC
The Ontario Securities Commission has extended the halt in trading of shares of troubled timber company Sino-Forest Corp. until April 16.
Vice-chair Mary Condon made the ruling after a brief hearing Monday where OSC staff argued that there was not enough information in the marketplace for the shares to trade.
Condon cited several reasons including the fact that Sino-Forest is in default of its financial disclosure requirements and that OSC staff is continuing its investigation.
The securities regulator first issued the temporary cease-trade order last August, amid concerns company executives were engaging in acts that they knew, or reasonably ought to have known “perpetrate a fraud.” It was later extended until Jan. 25.
Sino-Forest, which is based in China but is publicly listed on the TSX, has been mired in allegations it has overstated its sales, assets and holdings.
Company lawyer Alan Gardner did not object to the cease-trade extension.
OSC lawyer Hugh Craig argued that public disclosure has not improved since the cease-trade order was first issued. If anything “it has gotten more murky,” he said.
Craig pointed to the announcement this month, where the company warned its historic financial statements should not be relied upon.
He said the April date was proposed because the independent special committee, appointed by the company, looking into the allegations of short seller Muddy Waters is due out by month’s end.
As well Sino-Forest has promised to issue its third quarter earnings, which has been repeatedly delayed, and its annual financial statements are due on March 30. The mid-April date will give the public some time to digest information before shares trade, he said.
Sino-Forest has been mired in trouble, with accusations it has overstated assets and sales. Its failure to report its third quarter earning nearly sent the company into default this month.
The OSC ordered the trading halt last August, citing serious concerns that some company officers appeared to be engaging in acts of fraud.
Those five officers were also barred from trading securities – and Allen Chan stepped down as CEO days later.
Judson Martin, who has been an executive with several Brascan Group companies as well as Atlantis Alliance, was then appointed CEO of Sino-Forest.
The trading ban was later extended until January as the commission’s investigators continued its lengthy probe that includes thousands of documents, mostly in Chinese. The RCMP has since been called in to look at possible criminal fraud.
At the same time, Sino-Forest asked a special independent committee of its directors to investigate the allegations that were first set out by short-seller Carson Block of Muddy Waters last summer.
The Muddy Waters report sent the share price plunging after the short-seller, which makes money when a stock falls, accused Sino-Forest of being “a multi-billion-dollar Ponzi scheme.”
In November, the special committee’s interim report confirmed the company’s cash was as stated and timber holdings are in place, but conceded some information is difficult to verify in far-flung locales in China.
It was supposed to deliver a final report by the end of last year, but it now says it will be available by the end of January.
The company avoided a default this month, after reaching a deal with noteholders that includes paying a nearly $10 million (U.S.) outstanding interest payment as well as a 1 per cent waiver fee of $10 million (U.S.)
As part of the agreement, Sino-Forest has agreed to provide a strategic plan to advisers of an ad hoc committee of debt holders by March 31 that will include any timeline for any sale process and capital or equity process.
The company has agreed that it and its subsidiaries will maintain in aggregate a minimum cash balance inside China excluding Hong Kong of $165 million (U.S.) and a minimum cash balance outside China including Hong Kong of $140 million (U.S.).
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