Sino-Forest Corp. (TRE), the forestry operator accused by short-seller Carson Block of overstating its timberland holdings, said it will take until the end of the year to complete an independent probe into the allegations.
The delay, announced after Sino-Forest received an interim report from the investigators, sent shares in the Hong Kong-and Mississauga, Ontario-based company down 8.4 percent in Toronto yesterday. Sino-Forest, which has denied the claims, said June 14 that the review by PricewaterhouseCoopers LLP would take two to three months.
“The statement made people wonder whether the company does need time to finish the probe or is it just simply an excuse,” said Lucinda Chan, division director and head of Asian business at Macquarie Private Wealth in Sydney. “My impression is they want to buy some time, but nobody really knows the real intention.”
Sino-Forest has tumbled 67 percent in Toronto since Block’s Muddy Waters LLC made its allegations in a June 2 report. Hedge fund Paulson & Co., which had been Sino-Forest’s largest shareholder, sold its entire 12.5 percent stake in June, telling clients it had lost C$462 million ($472 million) since May 31 on the investment. Billionaire Richard Chandler, now the biggest single investor in Sino-Forest, said Aug. 4 he increased his stake to 18 percent.
“This is a large, overly complicated and deliberately opaque company,” Block said via e-mail. “Doing a diligent job requires more time than two to three months.”
Phone calls to Sino-Forest’s Hong Kong-based PR managers Siobhan Xiaohui Zheng and Joseph Lo Chi-Lun were not answered.
Sino-Forest dropped 56 cents to C$6.09 as of 4 p.m. yesterday in Toronto Stock Exchange trading.
“The independent committee has faced challenges due among other issues to the decentralization of data necessary for the completion of its review,” Sino-Forest said in the statement. “This has lengthened the period of time required for gathering and commencing analysis of vast amounts of electronic data and thousands of documents from all the subsidiaries of the company.”
The company also said yesterday it will repay $87.7 million of debt maturing this week. Payment of the 9.125 percent notes maturing on Aug. 17 will include accrued interest, the company said.
Sino-Forest’s second-quarter net income more than doubled to $447.1 million, or $1.64 a share, from $199 million, or 77 cents, a year earlier, the company said in the statement. The profit included a $469.5 million gain from the fair value of Sino-Forest’s convertible notes under International Financial Reporting Standards. Sales rose 6.3 percent to $317.4 million.
“Our company has been significantly impacted by the allegations made by Muddy Waters and the second quarter of 2011 was further impacted by management’s focus on dealing with the allegations,” Sino-Forest Chief Executive Officer Allen Chan said in the statement.
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