Sino-Forest Shares Surge After Wellington Management Discloses 11.5% Stake
Sino-Forest Corp. (TRE), the Chinese tree- plantation company accused by a short seller of overstating timber holdings, rose for a second day after Wellington Management Co. said it owned an 11.5 percent stake.
Sino-Forest climbed 27 percent in Toronto trading today, adding to a 30 percent gain yesterday, after the Boston-based investment firm said in a regulatory filing it held 28.3 million shares as of June 30. The stake was valued at C$90.7 million ($94.2 million) on that date. Wellington, which manages $663 billion, held 79,700 Sino-Forest shares, or 0.03 percent, as of Dec. 31, according to data compiled by Bloomberg.
“Maybe they know something the bears don’t,” Arthur Salzer, Toronto-based chief executive officer of Northland Wealth Management, which oversees C$200 million, said yesterday in a telephone interview.
Sino-Forest plunged 82 percent last month after Muddy Waters LLC, a research company founded by short seller Carson Block, said in a June 2 report that Sino-Forest overstated its tree-plantation holdings. Sino-Forest, based in Hong Kong and Mississauga, Ontario, rejected the allegations. Wellington’s purchase of the Sino-Forest stake suggests it’s the timber company’s second-largest shareholder, according to data compiled by Bloomberg.
‘Might Be Value’
“If they believe Sino has more licenses than Muddy Waters thinks they do, there might be value there,” said Salzer, who said he toured Sino-Forest’s plantations in China in 2005 and doesn’t own the shares.
Sino-Forest has commissioned an independent investigation and appointed PricewaterhouseCoopers LLP to assist. Sino-Forest said June 14 the probe won’t be completed for two to three months.
Sara Sherman, a Wellington spokeswoman, declined to comment when contacted by phone. Stan Neve, an external spokesman for Sino-Forest, declined to comment yesterday when contacted by e- mail.
Wellington, a closely held partnership founded in 1928, serves as an investment adviser to more than 1,950 institutions in 50 countries, according to its website. In addition to managing equity and fixed-income assets worldwide, the firm also runs alternative and multi-asset investment strategies.
US Airways Financing
In 2005, Wellington provided financing to allow US Airways Group Inc. to emerge from bankruptcy and merge with America West Holdings Corp. Wellington went on to become US Airways’ largest shareholder before cutting its stake in 2008.
Wellington managers are also responsible for at least an additional 3.2 percent holding in Sino-Forest through funds sold by Hartford Financial Services Group Inc., according to Bloomberg data. Wellington manages some Hartford funds under sub-advisory agreements.
Sino-Forest climbed C$1.14 to C$5.29 at 4:36 p.m. in Toronto Stock Exchange trading. The shares, which traded at an eight-year intraday low of C$1.29 on June 21, have more than doubled in the last five trading sessions.
“When the stock goes down to C$2, the investor base totally changes,” Marcus Xu, Vancouver-based director of equity investments at Genus Capital Management, which oversees C$1.7 billion, said in a telephone interview. “There’s definitely a lot of value you can argue for just on the simple probability of Muddy Waters being wrong on some of these points.”
‘Stomach the Risk’
“Right now Sino-Forest could very well be a good bargain for those investors who have the stomach for the risk,” Eric Yan, who helps manage about C$2.7 billion at Matrix Fund Management Inc. in Toronto, said in a telephone interview. “But we need more information from the company and a trustworthy independent source like PricewaterhouseCoopers.”
Paulson & Co., the hedge fund that had been Sino-Forest’s largest holder, said last month in a letter to clients it sold its entire 12.5 percent stake and had lost C$462 million since May 31 on Sino-Forest. Davis Selected Advisors LP held 30.9 million shares, or 12.6 percent of Sino-Forest, as of April 29, according to the Bloomberg data.
“I’m just as certain today that the company is a fraud and that the stock is a zero as I was on the day that we published,” Block said last week in an interview with Erik Schatzker on Bloomberg Television’s “InBusiness With Margaret Brennan.”
Sino-Forest unit Greenheart Group Ltd. gained 19 percent to HK$1.34 today in Hong Kong.