The latest investment firm to snap up a major position in Sino-Forest Corp. is no stranger to making high-roller bets on troubled companies.
Singapore-based Mandolin Fund Pte Ltd., owned by billionaire Richard Chandler, has a track record of buying undervalued assets and advocating for greater shareholder rights.
The fund said in a filing this week that it has increased its stake in Hong Kong-based Sino-Forest to 10.9 per cent, making it the third-largest shareholder of the forestry company.
The Toronto-listed shares of Sino-Forest have climbed 16 per cent since the news, following another runup earlier in the month that saw the shares briefly jump about 60 per cent after Boston-based institutional fund manager Wellington Management Co. LLP disclosed that it had acquired an 11.5-per-cent stake in the embattled company.
The ascent follows a rapid downfall in Sino-Forest shares that began June 2 when Muddy Waters LLC, a research firm and short seller, levelled fraud allegations against the forestry company, sparking questions about how much timberland in China it really controls. Sino-Forest insists it is no fraud, and charges that Muddy Waters' "inaccurate, spurious" report was aimed at generating big profits from its short position in the company's shares.
Some market commentators have suggested that Mr. Chandler's fund and Wellington may be looking to generate a short-term bump in Sino-Forest's share price and then get out.
But if history is a guide, they may have other plans in mind. The two funds are very familiar with each other following an earlier investment.
Mr. Chandler is a 54-year-old New Zealander who had a net worth of $3.4-billion (U.S.) last year, according to Forbes magazine. He has a record of pushing for better management and governance at large companies in which he takes a position.
In 2003, he and his brother, Christopher, bought a 14.9-per-cent stake in South Korea's SK Corp. after the shares plummeted on news that justice officials had found accounting irregularities.
The holding company controls South Korea's largest oil refiner and wireless provider. For two years, the Chandlers' investment firm at the time, Sovereign Asset Management, fought for changes in the cozy management structure of the conglomerate. SK officials pushed back by criticizing their largest shareholder as an aggressive raider seeking nothing more than short-term profits.
Although the Chandlers never managed to oust SK's chairman, Chey Tae Won – who had been convicted of accounting fraud at an affiliate – they did succeed in implementing other changes, including the appointment of additional outside directors. They also made a huge profit when they sold in 2005, estimated at almost $775-million.
Several other foreign investment firms held significant stakes in SK Corp. during the struggle, including Wellington Management.
The Chandlers' move to shakeup management and extract value from SK Corp. followed similar campaigns at several other large companies, including Russia's OAO Gazprom and some of Japan's biggest banks. Beginning in late 2002, their firm invested in four of Japan's banks, including UFJ Holdings, which later merged with Mitsubishi Tokyo Financial Group, creating one of the world's largest financial institutions.
The investments by Mr. Chandler's fund and Wellington Management in Sino-Forest follow hedge fund Paulson & Co. Inc.'s exit last month. The high-profile New York fund had been Sino-Forest's biggest shareholder, with a 12.5-per-cent stake. It reported a loss of $487-million from the sale.
Richard Chandler, a resident of Singapore, was the city-state's fifth-wealthiest individual last year, according to Forbes rankings. He and his brother began their investment careers in 1986 when they sold their parents' retailing business to invest in Hong Kong real estate, the magazine said.