A lengthy article in the Globe and Mail looks at the complex history of Sino-Forest, a joint venture between a Hong Kong entrepreneur and a Chinese government bureau, which is now being brought down by a major accounting scandal:
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.