Sino-Forest Corp. (TRE), the Chinese tree- plantation company accused by a short seller of overstating timber holdings, gained the most in almost two weeks after Wellington Management Co. said it owned an 11.5 percent stake. Sino-Forest rose 30 percent yesterday in Toronto after the Boston-based investment firm said in a regulatory filing it held 28.3 million shares as of June 30. The stake was valued at C$90.7 million ($94.5 million) on that date. Wellington, which manages $663 billion, held 79,700 Sino-Forest shares, or 0.03 percent, as of Dec. 31, according to data compiled by Bloomberg. “Maybe they know something the bears don’t,” Arthur Salzer, Toronto-based chief executive officer of Northland Wealth Management, which oversees C$200 million, said in a telephone interview. Sino-Forest plunged 82 percent last month after Muddy Waters LLC, a research company founded by short seller Carson Block, said in a June 2 report that Sino-Forest overstated its tree-plantation holdings. Sino-Forest, based in Hong Kong and Mississauga, Ontario, rejected the allegations. Wellington’s purchase of the Sino-Forest stake suggests it’s the timber company’s second-largest shareholder, according to data compiled by Bloomberg. “If they believe Sino has more licenses than Muddy Waters thinks they do, there might be value there,” said Salzer, adding he toured Sino-Forest’s plantations in China in 2005 and doesn’t own the shares. Greenheart Gain Sino-Forest unit Greenheart Group Ltd. gained as much as 27 percent, the most in almost a month, to HK$1.43 today in Hong Kong. The shares traded at HK$1.33 as of 11:17 a.m. local time. The gain is “related to Sino-Forest which yesterday rose very significantly,” said Nelson Yan, an investment manager who helps oversee $90 million at Mayfair Pacific Financial Group in Hong Kong. “The news of Wellington is a reason for giving investors a more positive factor to hold the stock.” Sino-Forest has commissioned an independent investigation and appointed PricewaterhouseCoopers LLP to assist. Sino-Forest said June 14 the probe won’t be completed for two to three months. Robert Toner, Wellington’s vice president and counsel, didn’t immediately return a call seeking comment during the U.S. Independence Day holiday. Stan Neve, an external spokesman for Sino-Forest, declined to comment when contacted by e-mail. Shares Rise Sino-Forest climbed 95 cents to C$4.15 at 4:09 p.m. yesterday in Toronto Stock Exchange trading, the biggest increase since June 22. The shares, which fell as low as C$1.29 in intraday trading on June 21, have gained 80 percent in the past four sessions. “When the stock goes down to C$2, the investor base totally changes,” Marcus Xu, Vancouver-based director of equity investments at Genus Capital Management, which oversees C$1.7 billion, said in a telephone interview. “There’s definitely a lot of value you can argue for just on the simple probability of Muddy Waters being wrong on some of these points.” “Right now Sino-Forest could very well be a good bargain for those investors who have the stomach for the risk,” Eric Yan, who helps manage about C$2.7 billion at Matrix Fund Management Inc. in Toronto, said in a telephone interview. “But we need more information from the company and a trustworthy independent source like PricewaterhouseCoopers.” Paulson & Co., the hedge fund that had been Sino-Forest’s largest holder, said last month in a letter to clients it sold its entire 12.5 percent stake and had lost C$462 million since May 31 on Sino-Forest. Davis Selected Advisors LP held 30.9 million shares, or 12.6 percent of Sino-Forest, as of April 29, according to the Bloomberg data. “I’m just as certain today that the company is a fraud and that the stock is a zero as I was on the day that we published,” Block said last week in a Bloomberg Television interview with Erik Schatzker. To contact the reporters on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net; Matt Walcoff in Toronto at Mwalcoff1@bloomberg.net. To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Simon Casey at scasey4@bloomberg.net.

Source