Third party may gain from forest battle
Copyright 2000 The Dominion (Wellington)
December 2, 2000
By WEIR James
THE bitter battle between Chinese company Citic and Fletcher Forests over their Central North Island Forestry Partnership may have degenerated to the point where the forests are sold to a third party.
According to some market observers a sale to a third party may be a way out for both sides, though there are several other possible outcomes, including receivership of the vexed partnership.
"There could be an offer out of the blue to buy the whole thing, from a third party," one Wellington fund manager said yesterday.
Though this option has not been considered likely, many big forestry companies looked at the former state-owned forests in 1996 when they were sold for more than $ 2 billion. Some may be running their slide rules over the forests again, in the low point of the log price cycle.
There would be widespread interest in the huge forest, and perhaps the man with the deepest pockets and closest to the action is Carter Holt Harvey chief executive Chris Liddell.
Carter Holt picked up US$ 1.24 billion (NZ$ 3 billion)from the sale of its South American Copec interest and now has no short term debt, with a strong balance sheet.
The avenue of sale is highly speculative and Carter Holt would not comment yesterday on possible acquisitions.
Carter Holt is the biggest forest owner in New Zealand with 330,000 hectares. The bulk of the mature trees are in the central North Island so there would be many benefits from buying the CNI partnership. But that sheer size means almost half the company's assets are tied up in forests and a further purchase may put too much of the company's base in that sector.
As the biggest forest owner, the company could also come up against Commerce Commission monopoly concerns about potential dominance of the log market.
Alternatively, the Fletcher-Citic partnership could end up in receivership with its banks selling off the forests. Though that is seen likely by some, it poses the most risks, with both sides facing much to lose, with some suggesting Citic could lose everything.
A fund manager said any potential buyers would probably want to buy the forests now, rather than a competitive bidding process from a receiver.
The other alternatives are that Citic and Fletcher Forests could patch up their relationship and agree to put more money into the partnership.
That would be the most positive outcome, though given present acrimony it may not be that likely.
Or the partnership's banks could agree to an extension of the debt with a rollover of terms to keep the partnership going. One observer said Citic is a big company with strong banking relationships and that may be a plausible outcome.
All the uncertainty has been a factor in the low price for Fletcher Forests, down to a low of 23 cents this week, ending steady yesterday at 25c on turnover of more than 2 million shares.
The other main factors are the sheer weight of the present $ 427 million rights issue, but also the dimming outlook for the global economy -- the Asian economy especially. It is tracking down, with leading indicators in Japan down this week and Korean shares down a long way this year. This does not bode well for demand for New Zealand logs and timber.