John Paulson, the Wall Street hedge funder whose trades made him US$1.83bn out of the credit crunch, is estimated to have lost nearly US$500m on investments in Sino-Forest in the last fortnight.
Paulson & Co, which has held shares in the Chinese company since 2008, was hit when another investor, Carson Block, alleged in early June that it had exaggerated the value of its timber assets. Sino-Forest denied the claim and appointed PricewaterhouseCoopers to investigate the matter. But the share price collapse continued and Paulson & Co sold its entire 14.1% stake in the Toronto-listed business.
Paulson told his own investors that his company had undertaken “due dilligence” on the Chinese operation and “shared their disappointment in this outcome”.
Sino-Forest’s stock market capitalisation fell US$4.3bn in the three weeks after the Carson Block allegation and further after Paulson & Co dumped its holding. Yesterday stock was down 89% on the start of the month and rating agency Fitch cut its debt rating on the company, once the biggest forestry business on the Toronto exchange, to junk.
Sino-Forest is also facing a US$6.5bn class action, with its directors and officers, its auditor Ernst & Young and consultancy Poyry, lodged on behalf of the Labourers Pension Fund of Central and Eastern Canada. The suit claims the company materially mis-stated assets and operational results and that Ernst & Young and Poyry earned fees for work they didn’t perform, or performed inadequately.
The Ontario Securities Commission has started its own investigation.
