Bloomberg News

Sino-Forest Cut by Moody’s; Further Possible Downgrade Seen

July 19, 2011

(Updates with closing share price in sixth paragraph.)

July 19 (Bloomberg) -- Sino-Forest Corp., the Chinese forestry operator targeted by short-seller Carson Block, had the ratings on its debt cut by Moody’s Investors Service amid an investigation into allegations about its plantation holdings.

Moody’s downgraded Sino-Forest’s debt to B1, four levels below investment grade, from Ba2 and is continuing its review for further possible downgrade, the ratings company said today in a statement.

Sino-Forest plunged 76 percent after Muddy Waters LLC, a research company founded by Block, said in a June 2 report that the company overstated its tree-plantation holdings. Hong Kong- and Mississauga, Ontario-based Sino-Forest, which has denied the allegations, has commissioned an independent investigation into the claims and appointed PricewaterhouseCoopers LLP to assist.

The ratings cut “reflects Moody’s expectation that Sino- Forest’s operations have been adversely impacted by the current investigations,” Ken Chan, a Moody’s vice president and senior analyst, said in the statement. “The longer it takes for the investigation to complete, the greater will be the pressure on Sino-Forest’s liquidity position.”

Stan Neve, an external spokesman for Sino-Forest, declined to comment.

Sino-Forest rose 75 cents, or 21 percent, to C$4.28 at 4 p.m. in Toronto Stock Exchange trading.

Paulson Stake

Fitch Ratings withdrew its BB- rating on Sino-Forest last week because it was unable to obtain enough information. Standard & Poor’s Ratings Services on June 30 lowered Sino- Forest’s long-term corporate credit rating to B+ from BB and placed it on CreditWatch with negative implications.

China’s reputation among investors has been strained in recent months after short sellers said companies from Longtop Financial Technologies Ltd. to Sino-Forest were exaggerating operations. Paulson & Co., the hedge fund that had been Sino- Forest’s largest shareholder, said last month in a letter to clients it sold its entire 12.5 percent stake and had lost C$462 million ($486 million) since May 31 on Sino-Forest.

Sino-Forest last month said its investigation won’t be completed for two to three months.

--With assistance from Christopher Donville in Vancouver. Editors: Simon Casey, Tina Davis.

To contact the reporters on this story: Michael Tighe in Hong Kong at; Jesse Riseborough in London at

To contact the editor responsible for this story: John Viljoen at

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