Glencore chairman caught up in Sino-Forest saga

By James Pomfret

HONG KONG, June 9 (Reuters) – Simon Murray, adventurer and gaffe-prone chairman of commodity trader Glencore, is back in the spotlight, this time over his role as a director of Sino-Forest, whose shares have been hit by accusations of fraud.

The company denies allegations made last week by a little-known research group, Muddy Waters, which is also a short seller of Sino-Forest stock. The Chinese forestry firm has said it may take defamation action and has hired a consultant and an independent committee to investigate the matter.

But shares in what was until recently one of the largest forestry companies on the Toronto exchange are down nearly 70 percent since Muddy Waters called the business model a ‘ponzi scheme’ that had exaggerated the value of its assets.

Whether or not the allegations prove to be true, the saga has put Murray back in the headlines, just weeks after his less-than-smooth appointment to the Glencore job and subsequent comments to a British paper about asylum seekers and women, which brought the commodities giant unwelcome attention.

He is still considered by some investors to carry insufficient clout to help Glencore manage the move from private company to respected bluechip.

Should there be any truth in Muddy Waters’ allegations, which include a claim that Sino-Forest overstated $900 million in earnings, the finger pointing would aim at not just founder and Chairman Allen Chan, but the company’s board as well, which includes Murray.

Murray, an independent director at the firm, joined Sino-Forest in 1999. He is also a non-executive director and shareholder in its subsidiary Greenheart Group.

“We have to wait to see who is shown to be correct but if Muddy Waters is proved right then it does raise questions about the board’s oversight,” said Jamie Allen, Secretary General of the Asian Corporate Governance Association.

Rating agency Moody’s has said it may lower its rating on the company’s debt, citing concerns about potential damage to Sino-Forest’s financial position even if the allegations prove to be untrue.

There is no indication that Murray, as a director, was privy to any potentially sensitive business decisions.

Murray, a former Foreign Legionnaire and former close associate of Hong Kong tycoon Li Ka-shing, did not respond to attempts to reach him by email and telephone.

Glencore, however, said it had confidence in Murray. “We are happy with Simon Murray as our chairman,” a Glencore spokesman said. He declined to comment further on the saga, which comes just weeks after the giant commodities trading and mining group became a listed blue chip company in London and Hong Kong.

Murray’s credentials as a financial heavyweight have already been questioned by some investors, and he is likely to face direct questioning at Glencore’s first quarter results next week, their first earnings release since the listing.

Sino-Forest, started by Hong Kong newspaper columnist and entrepreneur Allen Chan, 58, in the mid-1990s, is accused by Muddy Waters of massively exaggerating assets including forestry investments in the relatively undeveloped southwestern province of Yunnan by over $800 million.

Sino Forest dismissed the claims as “inaccurate, spurious and defamatory” while stressing its finances had been “thoroughly scrutinized” by auditor, Ernst & Young.

Murray, a seasoned Asia hand, was paid HK$575,000($73,900) last year by Sino Forest to act as an independent director.

Sino-Forest, which counts some major North American funds as its investors, including one run by legendary hedge fund investor John Paulson, declined requests for interviews with senior management, referring back to its press releases.

($1 = 7.779 Hong Kong Dollars) (Additional reporting by Rachel Armstrong in Singapore, Xavier Ng, Elzio Barreto and Justina Lee in Hong Kong, and Clara Ferreira-Marques in London; Editing by Michael Flaherty and Andrew Callus)