Chinese fertilizers Hanfeng, Migao risk ratings elevated

There’s a bit of a dark cloud hanging over Chinese companies listed on the Toronto Stock Exchange at the moment, thanks to the escalating Sino-Forest Corp. scandal.

Ben Isaacson, analyst with Scotia Capital, has bumped up his risk ratings on fertilizer producers Hanfeng Evergreen Inc. and Migao Corp. to “Caution Warranted” from “High Risk” as both are listed in Toronto via reverse take-overs, just like Sino-Forest.

“While our revised risk rating is not an attempt to group the two small-cap Chinese fertilizer companies with those Chinese RTOs that have recently been accused of fraud, we are erring on the side of caution,” he said in a note to clients.

Mr. Isaacson and his team have visited several China-based operational plants with both companies, spoken with major customers and interviewed local Chinese management, he said.

“We are not aware of any non-arms-length transactions,” he said.

However, Mr. Isaacson points out that a Migao director, Michael Manley, also sits on the board of Zungui Haixi, which recently had its trading halted after Ernst & Young suspended its audit.

As well, Hangfeng has installed a new chairman and chief financial officer in the past year.

Mr. Isaacson maintains a fundamental valuation preference for Migao over Hangfeng.