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RBC Backs Sino-Forest, Casts Doubt on Muddy Waters Claims

Sino-Forest Says Investigation Will Affect Tree Acquisitions
Sino-Forest has plunged in Toronto since Muddy Waters LLC, founded by Block, said in a report published June 2 that Sino-Forest is a “fraud” and said the company overstated its timberland concessions in China. Photographer: Norm Betts/Bloomberg

June 10 (Bloomberg) -- RBC Capital Markets has come out in support of Sino-Forest Corp., the Canadian-listed Chinese timber company whose shares have been battered since it was accused of fraud by Carson Block’s Muddy Waters Research.

Sino-Forest has more extensive timber holdings than claimed in the Muddy Waters report, and may not have been subject to harvest limits alluded to in the document, analysts Paul Quinn and Hamir Patel wrote in a note dated today. They maintained an “outperform” rating on the stock.

Muddy Waters said in a report released on June 2 that Hong Kong- and Mississauga, Ontario-based Sino-Forest’s disclosed land holdings don’t match Chinese city records. Block and his researchers may have relied too much on figures included in documents from China’s State Administration for Industry & Commerce, the RBC analysts said.

“The SAIC filings are for registration purposes and filed for each subsidiary at the county level,” the analysts wrote. “Simply adding up the financials of each subsidiary does not equate to the consolidated financials under international financial reporting standards, due to differences in accounting.”

RBC is the only bank of seven tracked by Bloomberg that has an “outperform” rating on Sino-Forest’s shares. The analysts left their target price of C$27 unchanged, representing a more than fivefold gain on yesterday’s closing price of C$5.15. The shares declined 72 percent from June 1, the day before the Muddy Waters report was released, to yesterday. The shares declined 11 percent to C$4.58 as of 10:12 a.m. today in Toronto.

Coverage Suspended

TD Newcrest Inc. has put its rating of Sino-Forest under review and BMO Capital Markets Ltd. cut its rating on the stock to “market perform”, according to data compiled by Bloomberg. Three of the remaining banks have placed the stock under review since the Muddy Waters report became public on June 2.

The RBC analysts said they had confirmed with the Chamber of Commerce and Industry in Suriname that Greenheart Group Ltd., a Hong Kong-listed company controlled by Sino-Forest, has business registrations there.

Greenheart, whose shares are down 46 percent since before the report was released, yesterday issued a statement to the Hong Kong stock exchange denying claims attributed to Muddy Waters that the Suriname registrations didn’t exist.

To contact the reporter on this story: Nick Gentle in Hong Kong at

To contact the editor responsible for this story: Darren Boey at

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