Toronto, Ontario, Canada, 03 June 2011 – Sino-Forest Corporation (TSX: TRE), a leading commercial forest plantation operator in China, today commented on the share price decline of 02 June 2, 2011, and the allegations made in a report issued on a Web site 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 assert 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, Sino-Forest recommends that 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 Web site 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 Web site lists Muddy Waters or its author as being registered as an advisor. Nevertheless, because of 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 special 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 special committee will be released to shareholders.
“We are committed to a high level ofcorporate governance and stand by the integrity of our company, our 16-year operational track record and our financial statements," said Allen Chan, chairman and CEO of Sino-Forest. "Our company has continuously retained the services of internationally recognized law firms, auditors and expert consultants from Canada, the U.S., 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,” Chan said.
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 USD 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 hectares of plantations in Gengma. However, this allegation ignores the fact that in addition to the purchased plantations in Gengma county, we have purchased approximately 173,000 hectares of plantations in approximately 25 other counties in Yunnan Province as of December 31, 2010.”
As at 31 December 2010, the company had approximately USD 1.26 billion in cash, cash equivalents, and short-term deposits, as reported in the audited consolidated balance sheet. As at 31 March 2011, the comparable amount was USD 1.09 billion. The company’s cash remains intact, with the majority of it in banks in Hong Kong and offshore.
As previously announced, the company intends to file its first quarter 2011 results on 14 June 2011.
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.