(Bloomberg News) John Paulson's $37 billion hedge fund lost C$462 million ($468 million) since May 31 on Sino- Forest Corp., the Chinese tree-plantation owner accused by a short-seller of overstating timber holdings, the firm said.
Paulson & Co. held 31 million shares of Sino-Forest in May, or 12.5 percent of outstanding stock, the firm said in a letter to clients. It had sold the entire stake as of June 17. The net realized loss on the investment since Paulson started buying Sino-Forest in 2007 was C$106 million, according to the letter.
"As the largest investors in the Paulson Advantage strategy, we share your disappointment in this outcome," the firm said in the letter, which was signed by Paulson and two other company executives. "We will continue to monitor the Sino-Forest situation."
Sino-Forest's shares have dropped 82 percent since June 2, when Carson Block's Muddy Waters LLC said the company overstated its timber holdings. Sino-Forest has denied the allegations. Paulson's fund had C$562 million in mark-to-market losses since Dec. 31 on the investment, the firm said in the letter.
A spokesman for Paulson & Co. declined to comment on the letter. Contents of the letter were reported earlier today by AR Magazine.
'Event-Driven Strategy'
Paulson first became interested in Hong Kong-based Sino-Forest in January 2007, following a Bloomberg News story that said CVC Asia Pacific Ltd. and Macquarie Bank Ltd. were considering buying the company, according to the letter. The fund started buying shares after Sino-Forest publicly stated neither firm would make an offer, causing the stock to fall.
"The investment thesis was consistent with the event-driven investment strategy of the Advantage funds, given the possibility of an acquisition or another development such as a re-listing from the Toronto Stock Exchange to a local exchange."
Paulson & Co. said its investment team conducted "considerable due diligence" on Sino-Forest, including sending one member to China to visit the company's operations and meet with a customer as well as representatives of the Chinese government.
"We reviewed Sino-Forest's public filings, participated in conference calls with the investment community, followed up privately with management on specific questions, discussed Sino- Forest with analysts that covered the company, and regularly met in-person with management," the firm said in the letter.