TORONTO, June 15 (Reuters) - Shares of Sino-Forest TRE.TO slid further on Wednesday after the Chinese forestry company’s response to fraud allegations leveled by short-seller Muddy Waters failed to convince many investors.
The Toronto-listed company’s shares fell another 10 percent to C$3.03 in early trading on the Toronto Stock Exchange, just a day after a price drop of more than 30 percent.
The company’s shares have fallen more than 80 percent since the time the Muddy Waters report surfaced in early June. Many blame the meltdown on Sino-Forest’s inability to reassure investors and tackle allegations that it has, among other things, exaggerated the size of its forestry assets.
On a conference call on Tuesday, Sino’s management publicly addressed investors for the first time since the Muddy Waters report went public. But many investors say they are unswayed by the company’s response. [ID:nN14147080]
The value of the company’s debt has also swooned. Its 10.25 percent bond due 2014, was bid at $65 on Tuesday to yield 27.72 percent according to Thomson Reuters data. It had been trading above par before the allegations first surfaced.
“We view the company’s corporate disclosure as weak, and management seemed reluctant or unable to provide concrete answers to a number of the questions on last night’s call,” said Nomura debt analyst Annisa Lee in a note to clients.
“Given these issues and the decision to not buy back any bonds or equity in the near term, we continue to see more downside risk to Sino-Forest bonds,” Lee said.
The Sino-Forest debacle has also caused investors to steer clear of new issuances in the offshore yuan bond market, as the allegations have brought activity in the market to a screeching halt this week. [ID:nL3E7HF14N]
The scandal has also tainted other Chinese entities with North American listings. Shares of these companies have sold off recently following the allegations against Sino-Forest and a rash of recent accounting scandals. [ID:nN10232390] [ID:nLDE75902O] [ID:nN09101337] [ID:nN0997357]
“Any time a leader in the space is under these kinds of allegations - and I stress allegations - it makes the entire industry more cautious,” said George Tsiolis, an investor and head of China Securities, an online community dedicated to small-cap Chinese companies.
“I think what’s happening with investors right now is they are throwing the baby out with the bathwater. I still believe there are a lot of really good Chinese companies out there, but I don’t blame investors for taking the position of sell first and come back later when the waters aren’t so muddy,” he said. (Reporting by Euan Rocha and Claire Baldwin)