Sino-forest Corp (TRE)

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Sino-Forest Corporation operates as the largest forestry plantation company in China. The company sells standing timber or harvested logs from its plantation portfolio, including pine, Chinese fir, and eucalyptus. In addition, the company sells landscaping products to property developers. Sino-Forest is headquartered in the Greater Toronto Area (Canada).

The company has come under fire after a broker accused it of fraud in June 2011. The hedge fund Paulson & Co, which was the company’s largest investor, reportedly suffered a loss of up to $500M before deciding to sell its shares.^[1]

Business Overview

As of 2009, it had approximately 438,900 hectares of forestry plantations under management. The company was founded in 1994 and is based in Mississauga, Canada.

News Updates

• On June 2, 2011, shares in Sino Forest fell 71% following the release of a negative research report by Muddy Waters Research alleging accounting deception and fraud.
• On June 7, 2011, Sino-Forest issued a strong statement denying the allegations of fraud. The company posted its bank statements as of March 31, 2011 to show its USD1.1 billion cash

balances, which were mainly kept offshore in Hong Kong.^[2]

• On June 15, 2011, Sino-Forest held its quarterly conference call. The company indicated that it may not be able to show its certificates of timberland ownership. ^[3]

Trends and Forces

Friendly Chinese Government Policy Favors Growth

In 2009 China announced a 4 trillion yuan ($585 billion) stimulus package, aimed at providing an impetus to its domestic economy. As the largest timberland operator in China, Sino-Forest stood to benefit tremendously from the stimulus. The company received a special $1.5 billion low interest loan from the Chinese Development Bank to fund growth. ^[4]

High Profile Skepticism May Hamper Growth

Although China has emerged as a region of high growth and profitability, there remains considerable risk. Financial reporting standards are still not concrete, leaving room for skepticism. Rumors of fraud, even if ultimately proved untrue, may have a long-lasting negative impact on a company.

Competition

• China Forestry (CHFY) is a Hong Kong-based forestry company partly owned by the Carlyle Group.
• China Forest Industry Holdings Limited (EPA:MLCFI)) is a Hong Kong-based holding company active in the forestry and wood processing sector.
• Western Forest Products (TSE:WEF): WEF engages harvesting of timber, reforestation, forest management, the manufacture and sale of lumber and wood chips, and the sale of logs in the coastal regions of British Columbia.

References

1. ↑ New York Times, “Paulson Speaks Out on Sino-Forest” 24 June 2011
2. ↑ JP Morgan report, “Asia Credit Roundup” 7 June 2011
3. ↑ BMO Capital Capital Markets analyst report, 15 June 2011
4. ↑ [http://www.reuters.com/article/2009/08/07/sinoforest-preview-idUSBNG50111120090807 Reuters “Sino-Forest seen benefiting from China's stimulus “]