Sino-Forest avoids default after debt waiver Sino-Forest, the scandal-plagued Chinese forestry company, has postponed a default on its $1.8bn of bonds after a core group of bondholders agreed to temporarily waive their right to force the company into bankruptcy. In a statement on Friday, Sino-Forest announced that the holders of its bonds due in 2014 and 2017 had agreed to a default waiver in exchange for a small cash payment and a series of commitments from the company's management. IN Basic Resources "This allows the company to buy more time," said Annisa Lee, analyst at Nomura. But she warned that the company was unlikely to escape default over the longer term because it had lost access to capital markets and was running out of cash. Knowing well that creditors have historically recovered little from the forced liquidation of Chinese companies, Sino-Forest's bondholders are reluctant to push Sino-Forest into bankruptcy. Under the waiver agreement, Sino-Forest promised bondholders that by the end of March it would give them a strategic plan for the sale of assets or raising of capital. Sino-Forest, which is under investigation by Canadian regulators over allegations of fraud, promised to deliver its final internal report into the allegations by the end of January. The Toronto-listed company has denied the allegations. The company also said it would make its "reasonable best efforts" to release its third quarter results, which were due last month, but did not specify a time frame. It was the delay in releasing its earnings report that prompted some bondholders to send the company notices of default last month. On Friday, Sino-Forest's four tranches of bonds, due in 2013, 2014, 2016 and 2017, were all trading at about 36 cents on the dollar, having jumped 8 cents after news of the default waiver. A year ago, the bonds were trading above 100 cents on the dollar. Sino-Forest, which last month missed a $9.7m interest payment on its 2016 convertible bonds, said it would now make that payment and continue to honour the coupons on all its other bonds. The company also agreed to pay a waiver fee of $10m, or 1 per cent of the principal amount, to the holders of its bonds due 2014 and 2017. In further concessions to bondholders, Sino-Forest promised to restrict material transactions, to not pay any funds to its shareholders or subsidiaries, and to not let its onshore cash balance fall below $165m or its offshore cash balance fall below $140m. The levels chosen for Sino-Forest's minimum cash balance imply that the company will continue to burn through cash in the coming months, analysts said. In November, Sino-Forest disclosed it had $317m in cash onshore and $254m offshore. "Bondholders don't gain much from this story continuing ever on," said Owen Gallimore, strategist at ANZ. The default waiver granted by bondholders will terminate at the end of April 2012.