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Sino-Forest warns historic financial documents 'should not be relied upon'

Sino Forest Corp.

Adam Dean/adam dean The Globe and Mail

Embattled Sino-Forest Corp. is warning that its historic financial statements and audit reports should not be relied upon.

The Canadian-listed and Hong-Kong-headquartered forestry company said in a statement that it still can't release its third quarter financial statements because it hasn't been able to determine the nature of certain relationships between the company and its business partners. Sino-Forest was once Canada's largest publicly traded timber company but saw its shares collapse in June after a short-seller accused it of fraud. Sino-Forest also said it still hasn't been able to explain and resolve issues outstanding raised by documents identified by its auditor Ernst & Young and staff of the Ontario Securities Commission, which is investigating the company.

Sino-Forest said there is "no assurance" that it will be able to release its third-quarter results or audited financial statements for its 2011 fiscal year.

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"The circumstances that could cause the company to be unable to release the Q3 results could impact the company's historic financial statements. For this reason, the company cautions that the company's historic financial statements and related audit reports should not be relied upon," Sino-Forest said in the press release.

Sino-Forest is now scrambling to convince a majority of holders of two of its bond issues not to tip the company into default. It needs a majority to agree to grant the company waivers from default after it failed to release its financial results and skipped a $9.8-million interest payment in December.

Sino-Forest said it is "optimistic" that a majority of bond holders will agree to waive the default breach before a Jan. 16 deadline. The company said it has agreed to terms with investors who hold a "substantial portion" of Sino-Forest's debt.

The OSC has halted trading in Sino-Forest's shares and the RCMP are also investigating the company, which once boasted a market value of more than $6-billion before the fraud allegations sent the stock plunging on the TSX.

Sino-Forest's co-founder, chairman and chief executive officer Allen Chan resigned in August along with three other top executives after the OSC accused them of engaging in undisclosed related party transactions and other fraudulent activity.

None of the allegations have been proven.

If Sino-Forest fails to come to terms with holders of its $1.8-billion in outstanding debt, the company, which had less than $600-million in cash when it last disclosed financial results, would be insolvent and would likely have to file for protection from creditors.

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About the Author
Asia-Pacific Reporter

An award-winning journalist, Andy Hoffman is the Asia-Pacific Reporter for Canada's national newspaper, The Globe and Mail. More

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