Additional Information
Market: TSX
Sector: Manufacturing
1 year chart
1 day chart
Sino-Forest Corporation

Sino-Forest Corporation is a leading commercial forest plantation operator in China. Its principal businesses include the ownership and management of forest plantation trees, the sale of standing timber and wood logs, and the complementary manufacturing of downstream engineered-wood products.

Sino-Forest CEO Chan resigns, shares suspended, S&P withdraws rating

29th Aug 2011, 11:46 am by Joyanta Acharjee
Sino-Forest CEO Chan resigns, shares suspended, S&P withdraws rating

Canadian-headquarted Sino-Forest (TSE:TRE) said that Allen Chan has "voluntarily resigned" as chairman and CEO of the Chinese forest plantation operator, pending the outcome of an internal review into fraud allegations, while Standard & Poor's withdrew its rating on the company.

On Friday, provincial markets regulator the Ontario Securities Commission suspended trading in Sino-Forest shares and recommened the resignation of four key directors, including Chan, before quickly rescinding the latter decision. The regulator is investigating Sino-Forest following a report flagging up fraud at the forestry company in early June.

"Sino-Forest and certain of its officers and directors appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings," the OSC said in its findings last week.

Shares in Sino-Forest have fallen 73% over the past year to $4.81 on August 25, the day prior to the suspension. In late August last year, the company's shares were trading at around the $18 mark. Standard & Poor's Global Timber & Forestry Index, in which Sino-Forest has a weighting of almost 10%, was down 16.98% for the year to date on August 26.

In a statement, Standard & Poor's analyst Frank Lu said: "We lowered the rating on Sino-Forest partly because we believe recent developments point towards a higher likelihood that allegations of fraud at the company will be substantiated." Before withdrawing its coverage, S&P had cut its rating on the company to CCC- from B.

Ratings agency Moody's Investors Service also cut its rating on Sino-Forest to Caa1 from B1, and warned it was continuing its review of the company for possible further downgrades.

Sino-Forest's recent woes began in June, when Hong Kong-based independent research firm and short-seller Muddy Waters issued a sell rating on Sino-Forest, alleging in a report published on June 2 that the company was a "multi-billion dollar Ponzi scheme" that has been "aggressively committing fraud...since 1995".

In a statement released on Sunday, Sino-Forest named current vice-chairman Judson Martin as the new CEO, and company director William Ardell as chairman. Ardell is also the chairman of the independent committee that is reviewing the charges levelled at the lumber company by Muddy Waters.

Since the allegations first surfaced, significant trading activity in Sino-Forest stock has taken place. New Zealand businessman Richard Chandler took a 10.85% stake in the company in July, increasing the holding to 18% as of early August, becoming its largest shareholder.

Also last month, well-known U.S. money manager John Paulson took a loss on his stake in the beleagured timber company, as his $37 billion Paulson & Co. hedge fund firm sold its entire holding of 34.7 million shares, or around 14% of the company.

Sino-Forest is also the subject of a $6.5 billion class action lawsuit filed in mid-June by Ontario law firms Koskie Minsky LLP and Siskinds LLP.

Earlier this month, the company said it swung to a loss in the second quarter on higher costs and lower gross margin from plantation fibre operations.

For the three months ending June 30, the lumber company reported a net loss of $9.8 million, from a profit of $60.8 million a year ago, excluding a gain of $470 million from the fair value adjustment of its convertible notes. Revenue for the period rose 6.3% to $317.4 million.

No investment advice

Proactive Investors North America Inc, trades as "Proactiveinvestors USA & Canada".

You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

You understand that we may be providing advertising and/or marketing services to companies mentioned on the site. A full list of companies that are paying for services from us, or our affiliated companies in the UK and Australia can be viewed here