Photo: Sino Foest
Is Sino-Forest really a fraud, or a victim of exaggerated claims of deceit?Canadian paper the Globe and Mail undertook a massive investigation to uncover whether the Chinese forest operator, which is listed in Toronto, is as shady as short-seller Carson Block says it is.
Their conclusion: yes it is.
Sino-Forest “appears to have substantially overstated the size and value of its forestry holdings in China’s Yunnan province, according to figures provided by senior forestry officials and a key business partner there” according to the Globe and Mail.
In case you missed it, at the beginning of the month, Carson Block’s Muddy Waters published a report on Sino-Forest equating it with the Madoff Ponzi scheme.
The report triggered the company’s share price to nosedive, and caused investors, the most famous of which is John Paulson, to lose millions.
The company denied the report, and brought in PriceWaterHouse to investigate the allegations by Block’s research.
The Globe and Mail undertook “two weeks of on-the-ground reporting that included interviews with Chinese government officials, forestry experts, local business operators and brokers [and] uncovered a number of glaring inconsistencies that raise doubts about the company’s public statements regarding the value
of the assets that lie at the centre of the company’s core business.”
Those inconsistencies focus mainly on a deal to buy up timber rights in Yunnan province:
- There’s a 2007 agreement that Sino-Forest says gave it the right to buy timber rights for up to 200,000 hectares of forest in Yunnan over a 10 year period, with a partner called Gengma Forestry. Sino-Forest said the deal is basically done and they own more than 200,000 hectares.
- Gengma said at the moment, Sino-Forest owns less than 14,000 hectares.
- And “to find Gengma Forestry… you have to duck down an alleyway behind the drugstore on the main street of this nondescript trading city, then up a dusty cement staircase.”
- Gengma Forestry’s office manager told the Globe and Mail: “Our relations with [Sino-Forest] were not totally good. They talked about a lot of things, but in the end it was hard to get money from them.”
- Chinese forestry officials also said Sino-Forest owns far less than 200,000 hectares.
- Sino-Forest has “refused to disclose the names or locations of the customers who buy its standing timber, saying it doesn’t want to reveal the identity of its customers for competitive reasons.
This is the latest chapter in the Sino-Forest story. The next big negative hit could come again from Muddy Waters. Carson Block has said he’ll publish more research on Sino-Forest “pretty soon.”
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