Sino-Forest Corporation

Sino-Forest Corporation
Company type	Public
Industry	Forestry, Wood products
Founded	1994
Defunct	2012
Fate	Filed for bankruptcy protection; reorganized as Emerald Plantation Holdings
Headquarters	Mississauga, Canada
Area served	China, international markets
Key people	Allen Chan (ex-CEO)
Products	Forest plantations, engineered wood products, wood fibre

Sino-Forest Corporation (Sino-Forest) () () was previously recognized as a major operator of commercial forest plantation ventures within China. In 2011, the company became subject to fraud accusations and investigations conducted by the Royal Canadian Mounted Police alongside the Ontario Securities Commission. On March 30, 2012, Sino-Forest sought bankruptcy protection in Canada and revealed intentions to either sell assets or reorganize its structure, directing the proceeds toward creditor repayment. Subsequently, on July 13, 2017, the OSC determined that Sino-Forest and four individuals, including ex-CEO Allen Chan, were guilty of fraudulent activities.

This entity should not be confused with China Forestry Holdings Ltd. (HK:0930) or the government-owned China Forestry Group Corporation (CFGC).

History

Established in 1994, Sino-Forest primarily engaged in owning and managing forest plantations along with producing engineered wood products downstream. The bulk of its income was derived from selling wood fibre utilized in industrial, commercial, and residential wood manufacturing. The company maintained a controlling interest in Omnicorp Limited (HK:0094), which specialized in importing wood fibre into China. Sino-Forest’s stock was listed on the Toronto Stock Exchange under the symbol TRE from 1995 until trading was halted in 2011. Its headquarters were located in Mississauga, Canada. By November 2010, the company’s market capitalization exceeded $5 billion.

As of September 30, 2009, Sino-Forest managed roughly 757,000 hectares of forest plantations and had access to over 700,000 hectares through six long-term master agreements. The firm planned to reforest approximately 200,000 hectares by 2012.

Company leadership expected to capitalize on China’s economic stimulus initiatives aimed at infrastructure expansion, earthquake recovery efforts, and construction of affordable rural housing.

Business segments

By September 2010, Sino-Forest reported ownership of about 757,000 hectares of forest plantations located in southern China. Its principal business divisions included Wood Fibre Operations—focused on plantation management, sales of standing timber and logs, and trading of domestic and international wood products—and Manufacturing and Other Operations—engaged in producing engineered wood flooring and panels, operating seedling nurseries, and delivering landscaping services.

Subsidiaries

Sino-Forest Corporation held an approximate 60% ownership stake in Omnicorp Limited (subject to shareholder approval for renaming as Greenheart Group Limited), a publicly traded company in Hong Kong (HK:0094). Furthermore, Sino-Forest possessed HK$212 million worth of convertible bonds issued by Omnicorp; conversion of these bonds would elevate its ownership to nearly 60% of the enlarged share capital.

Omnicorp’s subsidiaries concentrated on logging activities, lumber processing, and marketing logs and lumber products both within China and internationally. Omnicorp asserted control over 60.4% of harvesting rights for a hardwood forest concession covering 184,000 hectares in Suriname, South America; the remaining 39.6% was owned by Sino-Forest’s wholly owned subsidiary Sino-Capital Global Inc. Additionally, Omnicorp announced plans in November 2010 to acquire a radiata pine plantation in New Zealand pending fulfillment of certain conditions.

ARCPE

The Sino-Forest Applied Research Centre for Pearl River Delta Environment (ARCPE) was inaugurated on June 22, 2009 at Hong Kong Baptist University and continues operations under the Sino-Forest designation.

Financial status reported as of December 31, 2010

Sino-Forest's reported asset base expanded markedly from $0.7 billion in 2004 to $5.7 billion by 2010:

2004: $0.7 billion
2005: $0.8 billion
2006: $1.2 billion
2007: $1.8 billion
2008: $2.6 billion
2009: $3.9 billion
2010: $5.7 billion

The audited financial statements for the year ending December 31, 2010, indicated total assets of $5.7 billion, liabilities amounting to $2.4 billion, and a net profit of $395 million.

Allegations of fraud

On June 2, 2011, Sino-Forest's stock price collapsed following a critical report by Carson Block from Muddy Waters Research, which accused the company of artificially inflating its assets and earnings. The report described Sino-Forest as a "multibillion-dollar Ponzi scheme" involving significant misappropriation of funds. Sino-Forest refuted these claims and commissioned an independent inquiry led by PricewaterhouseCoopers. The share value plummeted by 82%, with investor John Paulson liquidating his entire holdings at a loss of $720 million.

On June 30, Standard & Poor's downgraded Sino-Forest’s long-term corporate credit rating from "BB" to "B+", with a further downgrade to "B" occurring on August 23.

On August 15, Sino-Forest disclosed delays in the PwC investigation due to challenges in accessing information from the Chinese entities involved.

Trading suspension of shares

The Ontario Securities Commission halted trading of Sino-Forest shares on August 26, 2011, citing evidence that the company engaged in conduct that it either knew or should have known was fraudulent. Initially, the OSC demanded the resignation of five directors but withdrew this request hours later after determining it lacked jurisdiction to enforce resignations without a formal hearing.

Filing for bankruptcy protection

Sino-Forest sought bankruptcy protection under Canada's Companies' Creditors Arrangement Act on March 30, 2012. Shortly thereafter, on April 4, its auditor, Ernst and Young, resigned.

Defamation legal action

One day prior to the bankruptcy filing, on March 29, 2012, Sino-Forest initiated a defamation lawsuit against Muddy Waters in the Ontario Superior Court of Justice, claiming damages totaling $4 billion. Muddy Waters countered that the bankruptcy filing substantiated its allegations, asserting that Sino-Forest would not require protection if it truly had generated nearly $2 billion in cash flow.

Resolution of investor litigation

In 2015, settlements totaling $117 million were paid by Ernst and Young along with multiple financial institutions—including Credit Suisse Securities (Canada) Inc., TD Securities Inc., Dundee Securities Corp., Merrill Lynch Canada Inc., RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., Canaccord Financial Ltd., and Maison Placements Canada Inc.—while former CEO David Horsley contributed $5.6 million to resolve lawsuits brought by investors.

Ontario Securities Commission ruling

On July 13, 2017, the OSC concluded that "Sino-Forest, Chan, Ip, Hung and Ho engaged in deceitful or dishonest conduct concerning Sino-Forest’s standing timber assets and revenue they knew amounted to fraud." The commission further ruled that these individuals breached Ontario securities laws by providing misleading information to commission investigators during the inquiry.

Bankruptcy protection proceedings

On December 10, 2012, a Plan of Compromise and Reorganization received approval and was slated to become effective on January 17, 2013. Control of the company has since transferred to its bondholders, with operations continuing under the name Emerald Plantation Holdings, headquartered in Hong Kong.

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