December 15, 2011 / 8:46 PM / 6 years ago

Sino-Forest shareholder calls for board shake-up

Toronto (Reuters) - Richard Chandler Corp, the largest shareholder in Sino-Forest, called on Thursday for a board shake-up, saying directors are taking too long to clear the China-focused forestry company of fraud allegations.

RCC, a Singapore-based investment firm that owns nearly 20 percent of Sino through its Mandolin Fund, slammed the board on Wednesday for its decision to trigger a debt default and called on Sino to reconsider.

Separately, Davis Advisors, another major shareholder, released an open letter asking the Sino board to reconsider its actions.

“We are unable to reconcile your actions with your fiduciary duty to represent the interests of shareholders,” said the letter.

Davis said it owns more than 17 percent of the company’s outstanding shares on behalf of its clients, making it Sino’s second largest shareholder.

Sino-Forest, until a few months ago the largest listed forestry company on the Toronto Stock Exchange, has been reeling since June, when short-seller Carson Block and his firm Muddy Waters accused it of exaggerating the extent of its Chinese assets.

Earlier this week, the company said it would again delay reporting its financial results, putting it in breach of debt covenants. Given the circumstances, Sino said its board has decided not to make interest payments due on December 15, raising the prospect of insolvency proceedings.

That decision came a few weeks after Sino said a preliminary investigation by its independent directors had shown no evidence of fraud.

On Thursday, RCC slammed the “excessive time and money” spent by the board on the probe and questioned the board’s decision to delay the results. Chandler’s fund stands to lose at least C$140 million and possibly much more, if Sino becomes insolvent.

“We call on the board to reverse its decision on the bond interest payment. All these issues raise serious concerns about the board’s ability to fulfill its responsibilities to stakeholders,” said the fund, which is run by New Zealand-born billionaire Richard Chandler.

The fund said it believes Sino-Forest can restore its credibility by “aligning management capabilities and governance policies with the scale and growth potential of its business.”

RCC called on any current director of Sino-Forest who is “preoccupied with issues of personal legal liability arising from the Muddy Waters allegations” to step down, so that a course can be set for the company to recover.

It asked the company to appoint new board members with appropriate experience to drive the necessary changes.

LEGAL WARNING

The fund also warned Sino’s directors could face shareholder lawsuits for negligence if they opt to default on debt payments. The company is already facing possible class action lawsuits from shareholders in both Ontario and Quebec.

Regulators have put a cease-trade order on Sino-Forest’s shares, pending the completion of an investigation into the company. The shares had fallen more than 75 percent this year, before being halted by regulators in late August.

Based on public records, the fund paid roughly C$140 million for slightly less than half its Sino-Forest holdings. The fund, which owns 47.95 million shares, did not disclose how much it paid to acquire its initial 26.7 million shares.

Sino-Forest’s total principal owing under four series of outstanding senior and convertible notes is about $1.8 billion. The company has also said it has loan facilities in China totaling $70.5 million.

Sino-Forest’s bonds continue to trade at deeply distressed levels, which investors say represents an approximate value of the company’s liquid assets, although there is no certainty about their worth in the market.

Additional reporting by Allison Martell; editing by Rob Wilson

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