China Forestry Holdings Co., a timber producer backed by private equity firm Carlyle Group LP, faces a payment deadline on its U.S. dollar bonds today as it seeks more time to audit its books and complete a debt buyback.
The company must pay the overdue half-yearly 10.25 percent coupon on $180 million of November 2015 securities to avoid a default, according to a May 16 Hong Kong stock exchange filing. A one-month grace period expires today. China Forestry paid the previous coupon in November after a similar delay.
“They’re effectively in default by our definition,” Johnson Ng, an analyst in Hong Kong at Standard & Poor’s, said by phone June 13. “The nature of their business requires a lot of capital for harvesting and trading. We think they’ll face difficulty in getting financing support, especially against the backdrop of accounting issues.”
The specter of default serves as a reminder that companies in emerging markets may not always employ the best corporate governance and accounting standards. Since discovering financial irregularities in early 2011, China Forestry has only been able to account for less than 1 percent of sales, it said in April 2012. Sino-Forest Corp., once China’s largest timber grower, defaulted on its dollar bonds before filing for bankruptcy in March last year after short-seller Muddy Waters LLC said it overstated its timber holdings.