Questions linger as panel winds up Sino-Forest probe

Wed Feb 1, 2012 11:25am EST
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By Sakthi Prasad and Rachel Armstrong

(Reuters) - A final report into fraud allegations at Sino-Forest Corp left many questions unanswered, with scant new detail on the value of its timber holdings or its opaque ties with suppliers.

The report by an internal committee, released late on Tuesday, is unlikely to pacify investors, who have been clamoring for answers since June, when short-seller Carson Block and his Muddy Waters firm likened the Canadian-listed Sino-Forest to a "ponzi scheme" and accused it of inflating the size of its Chinese forestry assets.

Regulators and law enforcement officials are investigating the company, which denies the allegations. Sino-Forest said in November that preliminary evidence from its internal probe had found no evidence of fraud.

In its final report, the committee admitted it has failed to answer all the questions on the company's business practices in China, including ones about related-party transactions and the valuation of its forestry holdings.

"I don't think the report addresses most of the issues highlighted in the last one and restores investors' confidence, it looks like it's just trying to meet the deadline," said Annisa Lee, Asia credit analyst at Nomura in Hong Kong.

"The valuation of the assets has not been done, which is one of the key things because this is crucial to determine the valuation of the company."

Sino-Forest shares fell more than 70 percent in the two days after the Muddy Waters report, and trade in the stock was halted in August. Canada's top securities regulator recently extended the cease trade order to April 16.

In a highly technical 13-page report, the panel of lawyers and auditors said it had not been able to assess whether Sino-Forest had a proper "arm's length" relationship with the owners of land on which it had contractual rights over the timber and businesses to whom it sold its wood.   Continued...