Jump to Navigation


External Reference/Copyright
Issue date: 
June 3
Publisher Name: 
More like this
Plantation Management


TORONTO, June 3, 2011 /CNW/ - Sino-Forest Corporation (TSX: TRE) ("Sino-Forest" or the "Company"), a leading commercial forest plantation operator in China, today commented on the share price decline on June 2, 2011 as a result of the allegations made in a 'report' issued on a website by a short seller operating under the name Muddy Waters, LLC. The Company was not contacted by Muddy Waters for comment ahead of publication of its report.

The Board of Directors and management of Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market. Further we recommend shareholders take extreme caution in responding to the Muddy Waters report.

As indicated in the report, Muddy Waters has a short position in the Company's shares and therefore stands to realize significant gains from a share price decline that it precipitated.  Muddy Waters expressly admits that it makes no representation as to the accuracy, timeliness, or completeness of any information contained in its report. Further, its website discloses no address or ownership information, nor the credentials of any of the authors of the 'report'. Neither the Ontario Securities Commission nor the Securities Exchange Commission website lists Muddy Waters or its author as being registered as an advisor. Nevertheless, due to the substantial impact that the report has had on the prices of the Company's securities and the reputation of the Company, the Board has appointed an independent committee consisting of three of the Company's independent directors, William Ardell (Chair), James Bowland and James Hyde.  All three of these directors are financially qualified professionals and two of the three are recent appointees to the Board. The independent committee's mandate is to thoroughly examine and review the allegations contained in Muddy Waters' report, and report back to the Board. The independent committee has appointed Osler Hoskin & Harcourt LLP as independent legal counsel and will retain the services of an independent accounting firm and such other independent advisors as it deems necessary to assist with its examination. During the course of the independent committee's examination, the Company will provide any updates as appropriate. Following conclusion of the report, the key findings of the independent committee will be released to shareholders.

Allen Chan, Chairman and CEO of Sino-Forest commented: "We are committed to a high level of corporate governance and stand by the integrity of our company, our 16-year operational track record and our financial statements.  Our company has continuously retained the services of internationally recognized law firms, auditors and expert consultants from Canada, the US, Hong Kong and mainland China."

"It is important that our independent committee thoroughly address Muddy Waters' allegations, and they will have my full support and those of the management team in doing so. However, let me say clearly that the allegations contained in this report are inaccurate and unfounded. Muddy Waters' shock-jock approach is transparently self-interested and we look forward to providing our investors and other stakeholders with additional information to rebut these allegations."

David Horsley, Senior Vice President and CFO of Sino-Forest commented: "I am confident that the independent committee's examination will find these allegations to be demonstrably wrong, as for example:

(a)  Muddy Waters fundamentally misunderstands and misrepresents the most basic items in our published Management's Discussion & Analysis with respect to revenue generated from Yunnan Province, which we report as being approximately 45.5% of the Company's standing timber revenue of approximately US$508 million. Muddy Waters alleges that it is impossible that such revenue existed because achieving such levels would greatly exceed allowable cutting quotas and it would be impossible to truck close to that volume in the period. However, that revenue was very clearly disclosed in our MD&A filed for Q1 and Q2 of 2010 as revenue resulting  from the sale of the standing timber - there is no cutting or transport involved, as the trees were sold but not harvested and therefore are not considered part of the quota for the region until the harvesting is conducted by the buyers.

(b)  Muddy Waters alleges that the Company overstated the assets in Yunnan Province, based on its erroneous and narrow assumption that our only purchases in Yunnan Province consisted of purchases of 20,574 ha of plantations in Gengma county in Yunnan. However, this allegation ignores the fact that in addition to the purchased plantations in Gengma county, (as disclosed in our 2010 annual MD&A of a total of approximately 193,000 ha purchased in Yunnan Province) we have purchased approximately 173,000 ha of plantations in approximately 25 other counties in Yunnan Province as of December 31, 2010."

As at December 31, 2010, the Company had approximately US$1.26 billion in cash, cash equivalents and short term deposits as reported in the audited consolidated balance sheet.  As at March 31, 2011, the comparable amount was approximately US$1.09 billion. The Company continues to hold such cash, with the majority of it in banks in Hong Kong and offshore.

As previously announced, the Company intends to file its Q1 2011 results on June 14, 2011.

About Sino-Forest Corporation

Sino-Forest Corporation is a leading commercial forest plantation operator in China. Its principal businesses include the ownership and management of tree plantations, the sale of standing timber and wood logs, and the complementary manufacturing of downstream engineered-wood products. Sino-Forest also holds a majority interest in Greenheart Group Limited, a Hong Kong-listed investment holding company (HKSE: 00094) with operations based in Suriname, South America and New Zealand, which is involved in responsible and sustainable log harvesting, lumber processing and sales and marketing of logs and lumber products to China and other countries around the world. Sino-Forest's common shares have been listed on the Toronto Stock Exchange under the symbol TRE since 1995. Learn more at www.sinoforest.com.

Please note: This press release contains projections and forward-looking statements regarding future events. Such forward-looking statements are not guarantees of future performance of the Company and are subject to risks and uncertainties that could cause actual results and company plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in China's and international economies and in currency exchange rates; changes in market supply and demand for the Company's products, including global production capacity and wood product imports into China; changes in China's political and forestry policies; changes in climatic conditions affecting the growth of the Company's trees; competitive pricing pressures for the Company's products; and changes in wood acquisition and operating costs.

Sino-Forest responds to allegations that caused their stock to drop 71% last week

June 6th, 2011

Last week, a short-seller, Carson Block, and his investment firm, Muddy Waters Research, who were never heard of before, made allegations against Sino-Forest Corporation that caused Sino-Forest’s stock to plunge 71%.

Sino-Forest Corp. is a Toronto-listed company that invests in Chinese timberlands. Muddy Waters Research claims that Sino-Forest is a fraud with wildly exaggerated assets and fabricated sales transactions.

Sino-Forest responded today with the following press release:

Sino-Forest Corporation, a leading commercial forest plantation operator in China, today provided further response to allegations by short seller, Muddy Waters, LLC.

The Company believes Muddy Waters’ report to be inaccurate, spurious and defamatory. Muddy Waters’ self-interest is transparent: to make money from the fall in Sino-Forest’s share price on the back of a decline that itself precipitated. Since the report’s release, the Company has been working to address the allegations. The Company’s Board of Directors is wholly sympathetic to stakeholders who are urging the Company to respond forcefully and quickly. However, the Company wants to respond definitively and it is the Board’s fiduciary duty to address these allegations with an unrestricted thorough and independent review, through the Independent Committee that was set up late last week. The Independent Committee has appointed independent legal counsel, appointing Osler, Hoskin & Harcourt LLP to support it in Canada and both Mallesons, (a leading international law firm with offices in Beijing, Shanghai and Hong Kong) and Jun He Law Offices a leading Chinese law firm. The Independent Committee is also expected to announce the appointment of an independent international accounting firm later today.

Ownership of trees
The recent events have caused several shareholders to request clear proof of ownership of the Company’s timber assets. The Board is anxious to respond to this request and has commenced actions to address this, focusing first on Yunnan Province, where the Company’s largest hectarage of purchased plantations are held and where the short seller focused its attacks. Nevertheless, the Company will be posting today the following initial supporting information on the Company’s website (www.sinoforest.com):

  • A signed copy of the master (framework) agreement (in Chinese) for Lincang City and surrounding areas in the Yunnan Province (together with a version translated to English for ease of reference) pursuant to which individual purchase contracts are then entered into;
  • A summary schedule, as at December 31, 2010, showing the 186,700 hectares of purchased plantations in cities of Yunnan province such as Lincang, Lijiang and Pu’er;
  • Signed copies of contracts relating to the acquisition of plantations in Gengma county of Lincang City and Ninglang county of Lijiang City, together with examples of the applicable plantation rights certifications or confirmations from the relevant government forestry bureau (as described in the AIF extract below). English translations will be also posted for ease of reference. Such contracts have been made available, at individual contract level with accompanying government confirmations, to the Company’s auditors as part of its annual audit process for numerous years; and
  • An extract from the Company’s annual information form (AIF) for the year ended December 31, 2010 describing the nature of the Company’s ownership interests in purchased plantations.

The consent from each relevant local government is necessary for the disclosure of the individual purchase documentation. The Company has made approximately 230 individual purchases under the six master framework agreements it has publicly identified which have occurred in approximately 38 cities (encompassing approximately 99 counties). The Company is seeking the applicable consents on an expedited basis first focusing on consents for its Yunnan purchased plantations. The Independent Committee have advised the Board that it will ask its independent experts to separately examine and review such individual purchase agreements and related government documents.

Cash on hand
As at December 31, 2010, the Company had approximately US$1.26 billion in cash, cash equivalents and short term deposits as reported in the audited consolidated balance sheet. As at March 31, 2011, the comparable amount was US$1.09 billion. The sources and uses of cash for the period ending March 31, 2011 will be further detailed in our quarterly report for the period ending March 31, 2011 expected to be issued on June 14, 2011.

Sino-Forest has released today on its website a summary schedule of cash and cash equivalent and short term deposits along with a detailed listing with copies of its bank statements confirming the cash held within the Company as at that date. The Company has conducted business in the ordinary course since then and made ordinary course expenditures, and its cash remains intact with the majority of it in banks in Hong Kong.

Share buy-back
The Company has heard from many investors encouraging it to buy back shares given the current prices. The Company has been advised by counsel that it and its directors and officers are precluded from purchasing stock in the current circumstances.

Legal recourse
Given the deeply damaging nature of Muddy Waters’ self-interested attack on the Company and its shareholders, the Company is considering its legal remedies against Muddy Waters and its principals. Further, the Company intends to ask the securities regulators in Canada and in other jurisdictions to investigate the trading activities conducted by Muddy Waters.

Analyst tour
The Company will be inviting analysts to join management on a tour of the Company’s plantations in July 2011, with details to follow. The analysts will be invited to suggest specific locations for the tour, and for each plantation visited, the Company will present GPS references and the ownership documents.

Chairman of Sino-Forest, Mr. Allen Chan, commented:

“I have spent 17 years building Sino-Forest and I can promise investors we are not guilty of the charges levied against us. The Company has grown significantly over the past five years; a period of time in which our financial statements have been audited by Ernst & Young a leading international audit firm, and during which we have been thoroughly scrutinized by several groups of major international underwriters and their well known legal counsel both inside and outside of China in the course of seven public and major private offerings. I stand by our audited financial statements, including the revenue and assets shown therein. All material related party transactions are appropriately disclosed in our financial statements. We do business with the parties identified in the report at arms length. Those parties are not related or connected to the Company or any of its management.

“I very much appreciate the understanding and support so many shareholders have shown us in the past few days. With over a billion dollars in cash, and a clear business strategy and plan, we will continue to focus on executing our business strategy, while we also deal with these allegations.

“It is important people recognize the motivations of Muddy Waters, because it is they who deliberately muddy the waters, not us. This is a company that has taken out a major short position in our company and then issued a report designed to make them money by the decline of our stock. By now they might be out of their short position and in the money. It is the rest of us that lick our wounds, while they lick their lips. I believe their report to be defamatory and I am confident that the Independent Committee’s report will demonstrate that.”


Extpub | by Dr. Radut