Sino-Forest plunges as Paulson dumps Entire Stake

June 24th, 2011 | by Jaxon Hewlett |

Shares of Sino-Forest Corp. (PINK: SNOFF) are sinking in today’s trading after the company’s biggest shareholder, hedge fund manager John Paulson, sold his entire stake in the company. The sale from Paulson comes two weeks after Muddy Waters, an investment firm, that the operator of commercial forest plantation in China overstated its timber holdings.

In Toronto, Sino-Forest shares sunk 29% to an eight-year low following Paulson’s exit. The problems for Sino-Forest began after a research report, published by Muddy Waters, alleged that the company overstated its timber holdings in China. The report immediately sent shares of Sino-Forest sinking. However, many investors continued to remain confident in the company as long as Paulson held his stake.

The sale from Paulson will further dent Sino-Forest’s reputation even as the company continues to rebut allegations from Muddy Waters. Since the report was first published on June 2, Sino-Forest has lost more than 90% of its market capitalization.

The sale from Paulson is just one of the setbacks for Sino-Forest in the last two weeks. RBC Capital Markets, a brokerage firm, suspended its coverage of Sino-Forest. Meanwhile, credit rating agency Fitch lowered its debt rating the company to junk.

As Sino-Forest continues to deny allegations from Muddy Waters, a report released by Globe and Mail newspaper in Canada raised doubts on the company’s business model.

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