Chairman "had something to do", company down USD 19 Billion (2)

For those readers who might not yet fully realize what has happened with Hanergy and who might think there is still hope, Bronte Capital wrote an article with the rather clear title:

"Hanergy: let there be no doubt".


"There has been much press that compares Hanergy to other solar companies and suggests there may be disruptions in the market for panels. Garbage I say. The right comparison is Sino Forest or Longtop Financial Technology.

Hanergy barely existed."


With Sino Forest and Longtop being two of the largest scandals of China-listed companies.

Zerohedge wrote:

"How China's (Formerly) Richest Man Destroyed His Own Fortune When He Tried To Sell A Stock".

Olam's shares suspended after Muddy Water allegations

Muddy Waters has targeted Olam (listed in Singapore) for "short selling". Temasek is a 15% shareholder of Olam, which makes this case even more interesting. At the moment the share is suspended, pending clarifications.

Muddy Waters has had some succes in some cases (Sino Forest comes to mind), but other cases were not clear cut at all (to say the least).

"Buyer beware", but also "Seller beware".


By Jesse Westbrook and Shruti Date Singh

    Nov. 20 (Bloomberg) -- Olam International Ltd., the commodities trader part owned by Singapore’s state-owned investment company, plunged the most in four years after short seller Carson Block said he’s betting against the shares because he questions the company’s accounting methods.

    The supplier of 20 agricultural goods from cocoa to rubber fell 21 percent in over-the-counter trading in New York yesterday, according to data compiled by Bloomberg, after Block said the company is booking profits on transactions before it’s clear how the deals will work out over time. Singapore-based Olam is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, he told the Ira Sohn Investment Conference in London.

    Olam is “dismayed at the nature and lack of substance” of Block’s comments and wasn’t contacted before by him or his Muddy Waters LLC research firm, Chief Executive Officer Sunny Verghese said in an e-mailed statement. He’s waiting for a report from Muddy Waters and “will strongly defend Olam’s excellent reputation for transparency and good governance,” he said.

    Block, 36, has successfully bet against Chinese companies that trade in North America after questioning their accounting methods. One target, tree-plantation operator Sino-Forest Corp., slumped 74 percent before eventually filing for bankruptcy protection in March last year.

                        ‘Leap of Faith’

    Olam will fail and recoveries for investors will be “negligible,” Block said. “It’s a leap of faith to think the company is being honest with its valuation” gains, he said.

    It fell 0.9 percent in Singapore yesterday to S$1.74 before the 29 cent plunge to $1.10 in New York. It has fallen 18 percent in Singapore this year compared with a 12 percent gain in the benchmark Straits Times Index.

    Hong Kong- and Mississauga, Ontario-based Sino-Forest Corp. plunged before being suspended in August last year after a June 2011 report from Muddy Waters accused it of fraud.

    Block took a short position in Sino-Forest by borrowing and selling the stock, aiming to profit by repaying the borrowed shares at a lower price. Sino-Forest filed for bankruptcy protection in March. The Ontario Securities Commission accused several executives including the former CEO Allen Chan of involvement in a “complex fraudulent scheme” to inflate assets and revenue.

                         Block Targets

    Other companies targeted by Muddy Waters include New Oriental Education & Technology Group Inc. Block said last month he’s “more convinced than ever” that the Beijing-based company is misleading investors. In February, Muddy Waters issued its fifth report on Focus Media Holding Ltd., claiming the Chinese advertising company overstated its network.

    “As it pertains to Sino-Forest, he was able to unearth something others weren’t,” said John Goldsmith, deputy head of equities at Montrusco Bolton Investments Inc. in Toronto, who sold his Sino-Forest shares for a loss in June 2011, seven days after Muddy Waters published its report on the company. “He, ultimately, was proven correct. You have to at least listen.”

    Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to secure foreign currency, according to Olam’s website. Today, Olam is the fifth-largest publicly traded global wholesaler of agricultural products ranked by revenue, after Bunge Ltd., Archer-Daniels-Midland Co., Noble Group Ltd. and Glencore International Plc., according to data compiled by Bloomberg.

                       Biological Assets

    The company supplies food to 12,300 customers in 65 countries and employs more than 18,000 people, the website says. Temasek Holdings Pte, Singapore’s state-owned investment company, holds 16 percent of Olam, according to data compiled by Bloomberg.

    The company’s first-quarter net income of S$43.2 million ($35.3 million) included an operation gain of S$10.1 million on account of “fair valuation of biological assets,” Olam said in a Nov. 14 statement. It said then that it started making such valuations in the third quarter of fiscal 2012 and “hence there was no operational gain/loss booked in the corresponding period” a year earlier.

    Overall, Olam said its quarterly profit rose 26 percent while sales gained 45 percent to S$4.69 billion. Net debt was $5.7 billion as of Sept. 30, according to data compiled by Bloomberg.

The roots of the Sino-Forest mystery

http://www.theglobeandmail.com/globe-investor/the-roots-of-the-sino-forest-mystery/article2152639/page1/


In the early days of 1994, a little-known Hong Kong entrepreneur named Allen Chan launched what seemed like a promising joint venture in the southeastern city of Zhanjiang in China’s Guangdong province.

The unimaginatively named Zhanjiang Leizhou Eucalyptus Resources Development Co. Ltd. was to produce micro-density fibre boards from timber harvested at a nearby plantation controlled by Mr. Chan’s fledgling company, Sino-Forest Corp. (TRE-T4.81----%) China’s economy was growing fast and its demand for wood was rising just as quickly. This new business was poised to fill that demand.

Partnering on the deal with Sino-Forest, which would soon obtain a stock market listing in Canada, was the Leizhou Forestry Bureau – an arm of the Chinese government.

For Mr. Chan and his co-founder at Sino-Forest, a former Forestry Bureau official in Guangdong named Kai Kit Poon, the Leizhou deal served as a key pillar in the initial stages of building their business. Between 1994 and 1997, Sino-Forest would report $60-million (U.S.) in sales from the venture.

There was just one problem: The Leizhou joint venture never produced a single panel, according to a key executive involved in the project.

More than 17 years later, things are quickly unravelling for Mr. Chan and Mr. Poon.

Sino-Forest is now enmeshed in a devastating scandal, and accused of participating in what could turn out to be one of the largest frauds in Canadian stock market history. Mr. Chan has lost his grip on the company; on Sunday he resigned his executive posts at Sino-Forest (while taking on a new title, “founding chairman emeritus”) after the Ontario Securities Commission alleged that he and other executives and directors appear to be engaged in activities that they know, or ought to know, “perpetuate a fraud.”

Part of what is so astonishing is that Sino-Forest and its business activities failed to arouse serious suspicions or concerns with most investors until June of this year when a short seller named Carson Block and his firm, Muddy Waters LLC, first levelled accusations of fraud against the company.

For more than a decade and a half, Mr. Chan, a martial arts enthusiast, aficionado of classical Chinese literature and former restaurant employee, along with Mr. Poon, an avid ballroom dancer, had presided over what was, by all appearances, an unparalleled Chinese business success story. By simply buying, managing and selling trees and forestry assets in mainland China, the firm’s profit increased from $3-million in 1994 to $395.4-million in 2010.

Mr. Chan and Mr. Poon’s business seemed perfectly positioned to cash in on the country’s roaring growth and burgeoning appetite for natural resources.

Instead of raising capital on the Hong Kong stock market or even Shanghai or Shenzhen, Mr. Chan and his business associates targeted Canadian investors, whom they said were better acquainted with the forestry sector. Sino-Forest listed on the Alberta exchange through a reverse takeover of a dormant shell company in 1994. In 1995, the company graduated to the Toronto Stock Exchange.

Sino-Forest has since raised more than $3-billion from debt and equity markets, mostly with the help of Canadian lawyers, accountants, analysts and investment bankers, and mostly in the past eight years. Investors bought into the company’s promise of a bright future – a promise that seemed to be backed by steadily rising profits. At its peak in March, the company boasted a market value of more than $6-billion (Canadian), making it by far the largest forestry firm on the TSX.

Sino-Forest says it used most of the funds to boost its forestry portfolio in mainland China, which it claims now exceeds 780,000 hectares. Despite healthy profit margins that often topped 50 per cent, Sino-Forest has been almost perpetually cash flow negative as it has spent more money buying trees and other forestry assets than it has generated through sales or by raising capital.

Now, Sino-Forest’s shareholders are stuck. Last week, the OSC halted trading in the stock, stating that the company appears to have engaged in “significant” deals with related parties, misrepresented its revenue, and exaggerated the size of its Chinese timber holdings “by providing information … which may have been false or misleading.”

For more information regarding this intriguing and astonishing story:

http://www.theglobeandmail.com/globe-investor/the-roots-of-the-sino-forest-mystery/article2152639/page2/