Sino-Forest granted protection to start sale process

Fri Mar 30, 2012 5:27pm EDT
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By Allison Martell and Jennifer Kwan

(Reuters) - A Canadian court on Friday granted Sino-Forest Corp TRE.TO protection from its creditors, and the embattled Chinese forestry company started looking for a buyer under the terms of an agreement with some of its noteholders.

The agreement allows the Toronto-listed company to pursue its sale to a third party, or if no buyer emerges, a restructuring that would let noteholders acquire nearly all of its assets.

Sino-Forest, whose stock tanked last year after a short-seller accused it of exaggerating its assets, was granted protection by the Ontario Superior Court of Justice under the Companies' Creditors Arrangement Act, the equivalent of U.S. Chapter 11 filing.

The company said holders of about 40 percent of the aggregate principal amount of its notes have so far agreed to support its plan, which it presented as the best way to secure its future and normalize operations.

"We believe the full value of our assets will only be achieved if we are able to continue operating the business," Judson Martin, chief executive of Sino-Forest, said in a statement.

Sino-Forest also said it was taking legal action against the short-seller, Carson Block, his firm Muddy Waters and other unnamed parties. It is seeking more than $4 billion in damages.

Last June, Muddy Waters accused Sino-Forest of exaggerating its assets and Sino-Forest's shares subsequently dropped 70 percent until regulators eventually stopped the stock from trading in August.

The case is the most prominent of a series of recent accounting scandals that have tainted the image of Chinese companies listed in North America. The scandals have prompted trading halts, delistings, lawsuits and regulatory probes both in Canada and the United States.   Continued...

The company logo of Sino-Forest is displayed at the entrance of its office in Hong Kong June 8, 2011. REUTERS/Xavier Ng