AR is out with an excerpt from a recent Paulson letter claiming that they only had a $107m loss in Sino Forrest.
According to the letter, Paulson’s initial interest in the firm followed a January 2007 news report that CVC Asia Pacific and Macquarie Bank were considering a bid for Sino-Forest. Paulson began researching the company and started building a position after news that Sino-Forest’s potential acquirers would not be bidding sent its stock price down. Then, in March 2007, after Sino-Forest sold a 16% stake of its stock to an investment group led by Temasek, Singapore’s sovereign wealth fund, Paulson & Co. decided the Chinese company’s stock was undervalued and suggested to the company that it move its stock listing from Toronto to Hong Kong or Shanghai to improve its valuation.
“As a passive investor in public companies, Paulson has access to the same information that everyone else in the securities market does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statement and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities,” said Paulson’s letter, noting that the firm conducted extensive due diligence on its investment. Additionally, the firm cited several legal and institutional controls that Sino-Forest had passed. Among them: financial and legal auditing by the Toronto Stock Exchange beginning in 1995; financial statements approved by such auditors as Ernst & Young; eight separate securities offerings between 2004 and 2010 and a large following by sell-side research analysts and ratings agencies. Though Paulson stopped short of denouncing Sino-Forest’s accounting, the firm attributed its decision to unload its [full] position in Sino-Forest to what it believes is irreparable damage to the company’s stock from a June 2 report from Muddy Waters Research that questioned the company’s public disclosures and financial statements.