Monday, April 30, 2012

Third Bad News for Carlyle IPO: China Forestry

With a looming IPO the last thing The Carlyle Group needs is more bad news.  Yet, that's the story from affiliate China Forestry.  Bloomberg's headline stated:

China Forestry Probe Verifies Under 1% of Reported Sales 

The piece went on to say:

China Forestry Holdings Co. (930), the logging company that last week said its only able to account for 1 percent of its historical sales, still has value in its assets, according to its third-largest holder, Carlyle Group

This is but the latest bad news for China Forestry.  Even in "recovery" the company can't win for losing:

Acting (China Forestry) Chief Executive Officer Li Jian resigned April 15, after the company’s net loss widened in 2011 as it struggled to rebuild its management and business relationships, according to separate filings on April 27. China Forestry hired Crowe Horwath HK CPA Ltd. as its auditor in January replacing KPMG LLC which resigned, saying the company needs to verify ownership and valuation of assets. 
China Forestry's sins include overstating the area of forestry rights by 150%::

The area covered by forestry rights certificates reviewed by investigators represents about 41 percent of the area the company said it owned the rights to in its 2010 annual report. 
It's financial statements aren't verifiable.

Financial statements for the years from 2006 through 2009 aren’t verifiable because the independent board committee conducting the probe found that some of the underlying supporting information isn’t available, the company said on April 27, detailing findings from the investigation.  

Carlyle invested in China Forestry in January 2008.  What kind of due diligence did they do?  Did they find the double books in one China Forestry subsidiary?

Would Carlyle judge this puffery, their defense in a former investor lawsuit?