Bloomberg News

Sino-Forest Declines After Globe Reports ‘Inconsistencies’

June 20, 2011

(Updates with closing share price in second paragraph.)

June 20 (Bloomberg) -- Sino-Forest Corp., the Chinese tree- plantation owner targeted by short seller Carson Block, dropped 14 percent in Toronto trading after a newspaper said the company may have overstated the value of its holdings.

The shares fell 46 cents to C$2.73 at 4:16 p.m. on the Toronto Stock Exchange. Sino-Forest, whose biggest shareholder is hedge-fund firm Paulson & Co., has tumbled 85 percent since Muddy Waters LLC, a research firm founded by Block, said in a report published June 2 that the Hong Kong- and Mississauga, Ontario-based timber company exaggerated its holdings.

“Inconsistencies” have been found in the valuation of Sino-Forest’s holdings in China’s Yunnan province, Canada’s Globe and Mail said June 18, citing Chinese government officials and forestry experts it didn’t identify. A plantation where Sino-Forest bought timber rights in 2007 is smaller than the 200,000 hectares (494,000 acres) it claims, the Globe said, citing Xie Hongting, chairman of Gengma Forestry, which sold land to Sino-Forest, and a provincial forestry official the newspaper didn’t identify.

Sino-Forest stands by the figure, the newspaper reported, citing a statement from the company, which said it bought 13,300 hectares directly from Gengma, and another 180,000 hectares from other sellers, using Gengma as a broker. The Globe’s report is an “incorrect portrayal” of the company’s business, Sino- Forest said today in a statement.

‘No Discrepancy’

“There is no discrepancy” between Sino-Forest’s public disclosure of its 2007 agreement to acquire plantations in Yunnan and the description of the accord and related acquisitions provided to the Globe and Mail, Sino-Forest said in the statement.

The company has set up an independent committee to investigate the allegations in the Muddy Waters report and appointed PricewaterhouseCoopers LLP to assist. Sino-Forest said last week it expects the investigation to take at least two to three months.

Richard Kelertas, a Montreal-based analyst at Dundee Securities Corp. who had said on a June 7 conference call that there was nothing fraudulent about Sino-Forest “to the best of our knowledge,” suspended coverage of the timber company today pending a review of the independent committee’s findings.

‘Past Ratings’

“Effective immediately our past ratings, target prices, valuation and estimates should no longer be relied upon,” Kelertas said in a note to clients.

Kelertas, who said on the call Muddy Waters had “pre- marketed” its report to hedge funds before it was published, didn’t return a call seeking comment.

Greenheart Group Ltd., a subsidiary of Sino-Forest, sank 12 percent in Hong Kong trading today after a 15 percent decline on June 17.

“The board is not aware of any reasons” for fluctuations in the price and trading volume of company shares, Greenheart said today in a statement issued at the request of the Hong Kong Stock Exchange.

“The board would also like to reiterate that operations of the group are independent of Sino-Forest,” the company said in the statement.

--With assistance from Helen Yuan in Shanghai and Hugo Miller in Toronto. Editors: Simon Casey, Steven Frank.

To contact the reporters on this story: Amanda Jordan in London at; Christopher Donville in Vancouver at

To contact the editors responsible for this story: Amanda Jordan at; Simon Casey at

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