August 29, 2011 – TORONTO (Reuters) - Credit rating agencies Moody's and Standard & Poor's slashed their ratings on the debt of Chinese forestry company Sino-Forest <TRE.TO> on Monday, a day after Allen Chan, chairman and CEO of the Toronto-listed company, stepped down in the face of fraud accusations.
Standard & Poor's, which had just cut its rating on Sino-Forest's debt for a second time a week ago, said it expects the company's business to deteriorate rapidly following new fraud allegations and the resignations of senior managers.
Sino-Forest said on Sunday that Chan had "voluntarily" stepped down and that three other senior employees had been placed on administrative leave. The moves came two days after Canadian regulators ordered a halt in trading of Sino-Forest shares and accused the company of misrepresenting revenues and keeping bogus accounts.
The charges made by the Ontario Securities Commission, Canada's main securities regulator, were seen as a vindication of damning allegations against the company made by a short seller in early June. Since short-seller Carson Block and his firm Muddy Waters accused Sino-Forest of fraudulently exaggerating the size of its forestry assets, the embattled company has shed roughly C$4 billion ($4.01 billion) in market capitalization.
S&P slashed its long-term corporate credit rating on the company to 'CCC-' from 'B'. It then went on to withdraw all its ratings on the company, saying that it does not have enough information to maintain a rating in light of developments since August 26.
"Sino-Forest's liquidity is weak, in our view," S&P analyst Frank Lu said in a statement. "The company does not have sufficient funds to repay its senior notes and convertible bonds, should they be accelerated."
Separately, Moody's cut its rating on the company to "Caa1" from "B1."
"Moody's is concerned that the allegations by OSC, while still under investigation, are serious. The trading suspension, the resignation of Allen Chan and the ongoing investigations add significant negative pressure on the company's operations and its ability to access additional liquidity," Moody's analyst Ken Chan said in an e-mail.
(Reporting by Euan Rocha; editing by Peter Galloway)