BUSINESS
06/08/2011 10:12 EDT | Updated 08/08/2011 05:12 EDT

Sino-Forest Investigation Launched By Ontario Securities Commission Over Firm's China Forestry Operations

Flickr: edenpictures

THE CANADIAN PRESS -- The Ontario Securities Commission has launched an investigation into Sino-Forest Corp. (TSX: TRE), the Chinese timberland owner accused of exaggerating its sales and assets.

A spokeswoman for the provincial securities regulator confirmed Wednesday that the OSC has begun an investigation into “matters related” to the Toronto-listed company, but did not provide any further details.

Shares in the company have lost three-quarters of their value since the allegations were made last week by short-seller Muddy Waters Research.

The company said it would ask securities regulators to investigate the trading activities conducted by Muddy Waters, which made the allegations in a scathing commentary on the company last week.

Muddy Waters has also said it would provide copies of the documentation it has reviewed to the regulator.

The company has appointed an independent committee to investigate the claims, but says it’s confident it will be vindicated.

In an effort to ease investor concerns, Sino-Forest has released sales agreements and other documents showing its ownership of timberlands in China.

Shares of the company were up 51 cents to $4.52 in trading on the Toronto Stock Exchange.

On Tuesday, Moody’s Investors Service put Sino-Forest under review for a possible downgrade after it raised concerns the company’s business may be affected even if the accusations are proven false.

“Moody’s notes that Sino-Forest has been growing aggressively, and needs ongoing access to the equity and debt markets to continue such growth,” the debt rating agency said in a statement.

“There is a risk that the current allegations will damage its ability to do so, or increase the cost of doing so.”

Moody’s, which currently had a rating of Ba2 on the company, said $1.9 billion in Sino-Forest debt is affected by the review.

The stock had traded for more than $18 before short-seller Muddy Waters Research published a scathing commentary on the company accusing it of fraud.

The company said it would detail its sources and uses of cash when it releases its quarterly financial results on Tuesday. Sino-Forest is also expected to take questions from financial analysts when it holds a conference call to discuss the results.

The average analyst estimate is for Sino-Forest to report a profit of 22 cents per share on $386 million in revenue, according to Thomson Reuters.

In 2010, the company reported a profit of $395.4 million or $1.60 per diluted share on $1.92 billion in revenues. That compared with a profit of $286.4 million or $1.38 per diluted share on $1.24 billion in revenue in 2009.