Sino-Forest default looms as probe drags on

Mon Dec 12, 2011 5:53pm EST
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By Euan Rocha

TORONTO (Reuters) - Sino-Forest TRE.TO, a China-focused forestry company accused of fraud, will delay reporting its financial results again, putting it in breach of debt covenants and raising the prospect of insolvency proceedings.

The company conceded in a statement on Monday that a review of the fraud charges leveled in June would extend into 2012. It had initially expected a team of its independent directors to present findings by September, but later it said the review would wind up by the end of the year.

Sino-Forest, until months ago the largest forestry company listed on the Toronto Stock Exchange, has been reeling since short-seller Carson Block and his firm Muddy Waters accused it of exaggerating the extent of its Chinese assets. Block alleged that the company had also fabricated certain sales transactions.

Last month, Sino-Forest said the review panel had been able to address and clear the company of many of the allegations, but certain issues remained.

Sino on Monday said the panel was still trying to determine the nature and scope of its relationship with intermediaries and suppliers involved in its land dealings. It is also seeking explanations for issues raised by certain documents, it said, without providing details.

Sino-Forest said its board has decided to delay the third-quarter financial results until those matters are resolved.

Last month, the company warned it was delaying its results, but it indicated it would attempt to file within 30 days to avoid a default. On Monday, it abandoned that timetable.

Block said the latest delay vindicates his position on the company. In an e-mail, Block also said Sino's move raises questions about the panel's preliminary findings, released by the company a month ago. At the time, the company said it found no basis for the short-seller's allegations against it.   Continued...