* S&P says delay in internal Sino investigation a negative
* Says it may withdraw, suspend its ratings on Sino
* Sino-Forest shares close nearly 10 pct lower (Adds details from S&P statement, background)
By Euan Rocha
TORONTO, Aug 23 (Reuters) - Shares of Sino-Forest TRE.TO fell more than 15 percent on Tuesday after rating agency Standard & Poor's once again lowered its credit rating on the Chinese forestry company, which has been accused of fraud.
The Toronto-listed company's shares have tumbled more than 75 percent since the beginning of June, when short-seller Carson Block said the company had fraudulently exaggerated the size of its forestry assets. Sino-Forest has denied any wrongdoing and it has asked a committee of its independent board members to look into the allegations.
The company's internal probe was originally expected to end around mid-September, but last week Sino-Forest said the review into the allegations leveled by Block and his firm Muddy Waters would not wrap up until the end of the year.
S&P said the delay was part of the reason it cut its rating on the company's debt to "B" from "B+" on Tuesday.
"We believe the delay in the findings of an independent committee's investigation into fraud allegations is negative for Sino-Forest's credit profile," S&P said in a statement.
It said it may withdraw or suspend its ratings on the company entirely if Sino-Forest delays its quarterly results announcement, or if it extends the investigation again.
The latest cut from S&P follows a cut on June 30, when the firm lowered its long-term corporate credit rating on Sino-Forest to "B+" from "BB". [ID:nN1E75T0AH]
Shares of Sino-Forest closed 9.6 percent lower at C$4.53 on the Toronto Stock Exchange on Tuesday after falling as low as C$4.22 earlier in the day .
The rating agency also warned that Sino-Forest's financial strength will likely weaken further as the company's profit margin will stay at a materially reduced level until it is able to clear its name.
"The longer the allegations are unresolved, investors' confidence in the company is likely to reduce even further, customer relationships may be damaged, and employee retention levels could fall," said S&P analyst Frank Lu, while adding that the delay also diverts management's focus from running the company.
Lu said the company's second-quarter results last week indicated that its profit margin fell to 23 percent from an average of about 35 percent over the last four years.
"We do not expect the company to return to its previous profitability levels," said Lu, adding that its liquidity is less than adequate beyond the 2011 time horizon.
"In our base case, we assume Sino-Forest's liquidity position will weaken in 2012 as the company uses its cash resources for debt servicing and capital expenditure, and it receives no additional debt or equity funding," Lu said.
According to its annual information form for the year ended Dec. 31, 2010, Sino-Forest had outstanding short- and long-term debt of about $2.07 billion.
While Sino-Forest has no long-term debt maturing in 2012, S&P estimates that the company will have interest expenses of about $125 million in the year.
Sino-Forest has roughly $345 million in long-term debt that comes due in 2013, along with another $424.5 million that matures in 2014 and 2015, according to the company's 2010 annual report.
"If the company cannot transform its business model to generate sufficient accessible operating cash over the next two years, it may not be able to repay or refinance the debt due in 2013, in our view," S&P said in its note.
Sino-Forest has about $590 million in bank indebtedness, accounts payable and interest obligations that also need to get paid through the course of 2011, according to its 2010 annual report. As of Dec. 31, 2010, the company was holding cash and cash equivalents of about $1.22 billion.
In its earnings statement last week, the company said its cash and cash equivalents stood at $899 million as of June 30.
$1=$0.99 Canadian Reporting by Euan Rocha; Editing by Frank McGurty and Peter Galloway