Bloomberg News

Sino-Forest Pares Losses After Releasing Documents on Assets

June 06, 2011

(Updates with closing share price in fifth paragraph.)

June 6 (Bloomberg) -- Sino-Forest Corp., which plunged last week after a report by short-seller Carson Block, pared its losses in Toronto trading after releasing information on some Chinese timber assets and its cash balance.

Sino-Forest posted today on its website copies of documents it says show supporting agreements on purchase contracts and plantations in China’s Yunnan province. The company also said in a statement its cash balance at the end of the most recent quarter was $1.09 billion.

Sino-Forest, whose investors include Paulson & Co., fell 71 percent in the two trading days before today after Block’s Muddy Waters Research said the Mississauga, Ontario- and Hong Kong- based operator of tree farms in China overstated its timberland holdings and production, an allegation Sino-Forest denies.

“The company’s full disclosure here should go a long way to clearing up the question of whether the company owns the trees,” Paul Quinn, a Vancouver-based analyst at Royal Bank of Canada who rates the shares “outperform,” said today in a telephone interview. “The disclosure on the financial side of the cash balance should give people comfort the $1 billion they disclosed at the end of Q1 is there.”

Sino-Forest rose 87 cents, or 17 percent, to C$6.10 at 4:18 p.m. in Toronto Stock Exchange trading. The shares, which earlier today rose to as high as C$8.53, closed at C$18.21 on June 1, the day before Block released his report.

‘Thoroughly Scrutinized’

Sino-Forest said today it’s “considering its legal remedies” and that the company has been “thoroughly scrutinized” by major international underwriters and law firms inside and outside of China in the course of seven public and private offerings in the past five years.

“The Company believes Muddy Waters’ report to be inaccurate, spurious and defamatory,” Sino-Forest said.

Muddy Waters’ Block didn’t immediately respond to an e-mail request for comment.

Sino-Forest is “a Ponzi scheme as it perpetually issues new securities to fund itself,” Block said in an interview on Bloomberg Television earlier today. “Were the company unable to issue additional securities, it would collapse.” He said his company will keep betting against the shares until they reach “zero.”

Muddy Waters, based in Hong Kong, said last week the amount of land the company said it bought from Lincang City in China’s Yunnan province doesn’t match city records.

“Sino-Forest has to show what is really known and what is proven,” Jan Lessner, 35, a labor lawyer in Dusseldorf, Germany, who owns 2,000 shares, said in a telephone interview. “With this statement and the documents on its website, people will begin to have more confidence in this company.”

--Editors: Steven Frank, Simon Casey.

To contact the reporters on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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