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S&P Says It’s Too Early to Assess Sino-Forest Debt Ratings

June 09, 2011

(Updates with closing share price in sixth paragraph.)

June 9 (Bloomberg) -- Standard & Poor’s Ratings Services said it won’t reassess Sino-Forest Corp.’s credit ratings until it gets independent verification of a report by Muddy Waters Research that the Chinese timber company overstated production.

Sino-Forest shares have tumbled 72 percent in Toronto since Muddy Waters, a firm founded by short seller Carson Block, said in a report published June 2 that the company’s disclosures of land holdings don’t match Chinese city records.

“If any major accounting irregularities are identified or confirmed, the negative impact on the ratings could be substantial,” Frank Lu, an analyst at S&P in Hong Kong, said today in a statement.

Sino-Forest has “adequate liquidity” based on an analysis of the Hong Kong- and Mississauga, Ontario-based Sino-Forest’s audited financial statements, S&P said. Sino-Forest’s long-term debt is rated BB, or two levels below investment grade, by S&P.

Moody’s Investors Service put Sino-Forest’s Ba2 corporate family and senior-unsecured ratings on review June 7 for possible downgrade.

Sino-Forest rose 23 cents, or 4.7 percent, to C$5.15 at 4:28 p.m. in Toronto Stock Exchange trading.

Sino-Forest said in a June 6 statement that the Muddy Waters report was inaccurate and that the forestry company had cash and cash equivalents of $1.09 billion as of March 31. Sino- Forest has appointed PricewaterhouseCoopers to assist with its investigations into the report.

Canadian Probe

“We don’t expect short-term large refinancing risks,” S&P said.

The Ontario Securities Commission, Canada’s main stock market regulator, said yesterday it’s investigating “matters related” to Sino-Forest. The company said in a statement it welcomed the inquiry. The Investment Industry Regulatory Organization of Canada is working with the OSC, Connie Craddock, a spokeswoman for the market surveillance body, said in a telephone interview.

Greenheart Group Ltd., which is 64 percent owned by Sino- Forest, climbed 43 percent, the biggest gain since June 24, 2009, to close at HK$1.47 on the Hong Kong stock exchange today. Greenheart fell 63 percent yesterday after it resumed trading for the first time since the Muddy Waters report.

Greenheart today provided details on its assets in Suriname. Muddy Waters said in its report that Greenheart doesn’t have a business registration in the country.

Regulators and investors have increased their scrutiny of Chinese companies trading in North America. The U.S. Securities and Exchange Commission began an investigation in 2010 into the use of reverse takeovers, where a closely held company acquires a shell company whose shares already trade.

--Editors: Simon Casey, Steven Frank.

To contact the reporters on this story: Christopher Donville in Vancouver at

To contact the editor responsible for this story: Simon Casey at

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