downgrade review
Approximately US$1.9 billion of debt affected
Hong Kong, July 19, 2011 -- Moody's Investors Service has downgraded to B1
from Ba2 the corporate family and senior unsecured debt ratings of
Sino-Forest Corporation ("Sino-Forest").
At the same time, Moody's continues its review for further possible
downgrade.
RATINGS RATIONALE
"The rating action reflects Moody's expectation that Sino-Forest's
operations have been adversely impacted by the current investigations
conducted by its independent commission on its sales, plantation assets
and authorized intermediaries," says Ken Chan, a Moody's Vice President
and Senior Analyst, adding, "Its financial performances are expected to
weaken and therefore be more appropriately positioned in the single-B
level."
"The company's ability to access external funding from the bank and
capital markets is also significantly and adversely affected in the
interim," adds Chan.
"While Sino Forest has taken measures to slow its capital expenditure to
conserve cash, Moody's expects balance sheet liquidity to decline from
its Q1 2011 level. The longer it takes for the investigation to complete,
the greater will be the pressure on Sino-Forest's liquidity position,"
says Chan.
In its review, Moody's will focus on the following:
1) Ownership and valuation of its timber plantation assets;
2) Relationships with the authorized institutions which buy timber from
the company, and which are the primary source of outstanding receivables;
4) Compliance of the company's business model with regulations in China,
particularly around the sales arrangements for standing timber and logs;
5) The potential for the company's business model to be impacted in the
next 2-3 years, even if the allegations prove to be unfounded.
Sino-Forest's ratings were assigned by evaluating factors that Moody's
considers relevant to the credit profile of the issuer, such as the
company's (i) business risk and competitive position compared with others
within the industry; (ii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. Moody's compared these
attributes against other issuers both within and outside Sino-Forest's
core industry and believes Sino-Forest's ratings are comparable to those
of other issuers with similar credit risk.
Sino-Forest Corporation is a holding company listed in Toronto. The
company is engaged in forestry plantation activities in China, as well as
in the sale of timber, wood logs and other wood products in China.
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