How Much Did John Paulson Lose in Sino-Forest?

There are reports circulating that estimate John Paulson’s loss in Sino-Forest at more than C$700 Million. We decided to calculate our own estimate using public reports and Paulson’s statements.

On October 30th, 2010 John Paulson reported a 34,714,300 position in Sino-Forest. (Here is the link for the filing). This position corresponded to 14.1% of Sino-Forest’s outstanding shares. Sino-Forest closed at C$20.16 at the end of October. The stock increased to C$23.29 by the end of the year. So Paulson made some money on Sino-Forest. He would eventually lose all of that and more.

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Canada requires Paulson to report his holdings under the following circumstances:

(c) within 10 days after the end of the month in which the security holding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer, as at the end of the month, increased or decreased past thresholds that are products of whole numbers multiplied by 2.5 percent of the outstanding securities of the class and that are in excess of 10 percent of the outstanding securities of the class; and

(d) within 10 days after the end of the month in which the security holding percentage of the eligible institutional investor in a class of voting or equity securities of the reporting issuer, as at the end of the month, decreased to less than 10 percent.

So Paulson had to report within 10 days after the end of the month if his holdings fell below 12.5% or 10%. Given that Paulson didn’t file anything until yesterday, (we assume he follows Canadian law) we take that he didn’t cross these thresholds in April or May. So, we will assume that Paulson had at least 12.5% of Sino-Forest at the end of May. We have no reason to believe than Paulson added any shares during the past 6 months (he has been reducing his holdings in the company since at least April 2010).

We know that John Paulson could have waited till the end of June (plus 10 days) to submit his filing (Here is the pdf of the filing). He didn’t. This tells us that he finished selling his entire stake by June 17th. During the previous 10 days, the average daily trading volume of Sino-Forest was close to 20 Million shares, so it’s reasonable to assume that Paulson sold his stake in the open market.

Assuming that Paulson executed his trades at the trade weighted average price of Sino-Forest between June 3rd and June 17th, he would have sold his 34.7 Million shares for C$145.5 Million.  These shares were valued at C$808.5 Million at the beginning of 2011. So, Paulson’s 2011 loss in Sino-Forest were probably at most C$663 Million.

If we assume that Paulson sold 3.94 Million shares at the beginning of 2011 without making or losing anything (so his share in Sino-Forest is slightly more than 12.5%), his loss would decrease to C$588 Million.

Overall, it’s safe to say that Paulson lost around C$600-C$650 Million in Sino-Forest.

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