China Forestry under SFC investigation

Trading of the Carlyle- and Partners Group-backed company has been suspended while Hong Kong’s securities regulator investigates ‘irregularities’ in the auditing process.

Hong Kong’s Securities and Futures Commission (SFC) has started court proceedings against Li Han Chun, chief executive of The Carlyle Group- and Partners Group-backed China Forestry Holdings, and his company Top Wisdom Overseas Holding.

In a statement, SFC said it had obtained an interim injunction to freeze assets worth up to HK$398.2 million (€37.8 million; $51.1 million).

The assets frozen, according to the statement, are the proceeds of the sale of China Forestry shares by Li and his company last month. On 12 January, Top Wisdom placed 119 million China Forestry shares at HK$3.35 each for HK$398.65 million.

The SFC’s investigation started on 31 January, when China Forestry’s auditors said they found possible irregularities in the audit process in the financial year ended 31 December 2010, according to the statement.

Trading in the shares of China Forestry has since been suspended at the request of the company.

Carlyle first acquired a roughly 12.5 percent stake in the forestry plantation operator for about $40 million in early 2008. In June 2009, it acquired an additional 4 percent stake in the company for about $15 million. The investment was made out of Carlyle Asia Growth Partners III, which closed on $680 million in 2005.

Also in June 2009, Partners Group acquired a stake of around 7 percent in China Forestry for approximately $30 million.

China Forestry was listed on the Hong Kong Stock Exchange on 3 December and raised $200 million from its initial public offering (IPO). Currently, Carlyle holds about 11 percent stake in the company, while Partners Group has a 5.51 percent interest.