Sino-Forest sees internal review taking 2-3 months

By Euan Rocha

TORONTO (Reuters) – Sino-Forest, the target of a scathing attack from short-seller Muddy Waters, said Tuesday its internal review of the allegations leveled against the company is likely to take two or three months to complete.

Hong Kong-based Muddy Waters earlier this month accused Sino-Forest of fraudulently exaggerating the size of its forestry assets. Although a number of analysts that follow Sino-Forest have slammed the Muddy Waters report, the company’s shares have fallen about 75 percent since the beginning of June.

“We are very disappointed for our stakeholders about the significant drop in the value of their investment in Sino-Forest due to the inaccurate and unfounded allegations reported by Muddy Waters,” Chairman Allen Chan said in a statement.

The Toronto-listed Chinese forestry company, which owns timber plantations spread across China, has strongly denied the Muddy Waters’ allegations of problems with its accounts and business structure.

Sino-Forest has appointed a committee of its independent board members to review the allegations, which have pummeled the value of its shares and bonds.

“We have assembled a strong team of independent advisers who are working diligently to complete this examination. At this time, given that our business is primarily based in China, it is anticipated that the examination will take considerable time to complete,” William Ardell, the chair of the independent committee, said in a statement.

The company, which counts billionaire hedge fund manager John Paulson as one of its biggest shareholders, has also said it is weighing legal action against the short-seller.

 

Q1 LOSS

The company also reported a first-quarter loss, largely due to changes in its accounting standards. The loss came to $22.1 million, or 8 cents a share, compared with a year-earlier profit of $15.9 million, or 7 cents a share.

Canadian securities regulators had granted the company a 30-day extension to file its first-quarter results, as this is the first time that the company is reporting results under the International Financial Reporting Standards (IFRS).

All public entities reporting in Canada have been mandated by law to transition to IFRS, from Canadian Generally Accepted Accounting Principles, this year.

Sino-Forest warned that given the damaging impact of the short-seller’s report it expects “the pace of tree acquisition to be adversely affected.”

Even so, the company said it believes it can continue its growth through acquisitions and through sustainable long-term replanting without accessing the capital markets.

The company said it had cash and cash equivalents of about $1.1 billion as of March 31.

Shares of the company, which closed Monday at C$4.98 on the Toronto Stock Exchange, are down nearly 80 percent so far this year. (Reporting by Euan Rocha; Editing by Frank McGurty)