Its corporate structure has opened Sino-Forest up to criticism that it is too opaque. The company has scores of subsidiaries in China and offshore locations such as the British Virgin Islands. It has refused to disclose the names or locations of the customers who buy its standing timber, saying it doesn't want to reveal the identity of its customers for competitive reasons.
Non-state-owned forests in China are usually collectively owned by village councils on behalf of their residents, or in some cases belong to individual households. The trees and their produce can be bought, but the land can only be leased.
As of the end of 2010, the company claimed control of about 800,000 hectares of trees in nine Chinese provinces plus New Zealand. Its operation in Yunnan province, in addition to being its largest, is also the one for which it has made additional disclosures recently in an attempt to defuse the allegations made in the Muddy Waters report.
So far, however, it has disclosed purchase agreements as well as forest and woodland rights certificates for about 7,000 hectares of forest in Yunnan. The company has not disclosed significant documentation regarding its forestry holdings in other provinces.
To find Gengma Forestry, Sino-Forest's local partner in the so-called "Yunnan master agreement" - the 2007 deal said to be worth as much as $1.4-billion - you have to duck down an alleyway behind the drugstore on the main street of this nondescript trading city, then up a dusty cement staircase.
On the landing is the litter-strewn office with an open door and a window protected by metal bars. Despite signing a deal with Sino-Forest that should guarantee a windfall, the company has clearly fallen on hard times. "Our relations with [Sino-Forest]were not totally good. They talked about a lot of things, but in the end it was hard to get money from them," said Zhang Ling, Gengma Forestry's office manager.
Ms. Zhang said the company was approached by Sino-Panel, a Sino-Forest subsidiary, out of the blue in 2006 - "they said they found us over the Internet" - but that they hadn't heard anything from the company in recent years. She said Gengma Forestry felt it had made a bad deal on the forests it sold. "We sold it for 30 yuan per mu (per year). Now the price is soaring because the hype around timber is very high."
When The Globe asked Sino-Forest why a Gengma official offered a different account of the 2007 deal, the company said it stood by its statements on the transaction and suggested Gengma's chairman should be contacted. "We don't know who you spoke to, but we continue to be in touch and have a good relationship with the Chairman, Xie Hongting," the company said in an e-mail. Mr. Xie's office address and local phone number were both included. When The Globe contacted Mr. Xie, he contradicted Sino-Forest's account that it has bought about 200,000 hectares of forest through the Yunnan master agreement.
With four years of the master agreement deal already elapsed, Mr. Xie said Sino-Forest has followed through on deals that give them long-term leases, which are usually for three or four decades, for timber rights on "almost" 200,000 mu of timber through Gengma, or about 13,300 hectares - not the 200,000 hectares the company claims to have acquired.
At the same time as the company announced the Gengma Forestry deal in 2007, it also announced the sale of $200-million (U.S.) in new shares to a group of investors led by Temasek Holdings, Singapore's massive sovereign wealth fund, to help pay for the timber deal - one of a series of equity and debt financings Sino-Forest has completed over the past decade to fund its huge growth.
While Gengma Forestry officials question Sino-Forestry's account of the 2007 deal, local land brokers said it would be difficult to find 200,000 hectares of quality land leases to complete that agreement.
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