$1.9b forest value relief for banks

By GEOFF SENESCALL

Bankers to the troubled Central North Island Forestry Partnership are understood to have independently valued the asset at $1.97 billion ($US830 million).

The estimate is believed to have been done on behalf of the banks by the leading international forestry consulting firm Jaakko Poyry.

As the valuation is significantly above the $US650 million owed to the banks, it should provide them with some comfort as the partnership heads to a likely breach of its lending covenants at the end of the year.

So far there has been little sign that the two warring partners - Chinese Government-controlled Citic and Fletcher Forests - will patch up their differences.

Both need to inject further cash into the partnership to avert the breach.

So far they have rejected this proposition, meaning that the banks might have to step in to resolve the situation.

Deutsche Bank forestry analyst David Stanley said that Jaakko Poyry's valuation should provide relief for the banks.

"Most analysts' estimates would be between $NZ1.6 billion and $NZ1.9 billion," he said.

"This compares to the bank valuation of $NZ2 billion.

"In order to judge the robustness of the Jaakko Poyry valuation we would need a bit more detail on prospective log prices, currency and tax assumptions.

"But it is also fair to say that the real value of anything is what the market will pay.

"We don't know whether CNI will be recapitalised by its partners as it stands or the recapitalisation will come through other avenues, including receivership and sale.

"I think it is pretty clear the CNI business is robust, that the Fletcher Forests business is robust and that the value is maximised by keeping them together."

Jaakko Poyry's valuation also implies that a considerable amount of Fletcher's junior debt of $US230 million is still intact. Given that the junior debt ranks behind that of the banks, the valuation suggests that Fletcher has $US180 million of value left inside the partnership.

This is worth nearly 17c a share to Fletcher Forests and could bring the value of the company's shares up to 50c. But Citic has made substantial legal claims against the company which could wipe out much of Fletcher's junior debt if it is successful.

At the same time, however, Citic has said it is willing to buy Fletcher's half share in the partnership for $218 million. This is about half what the Jaakko Poyry valuation implies the Fletcher stake is worth.

Fletcher Forests' share price closed steady at 25c yesterday, under the weight of a hefty $427 million rights issue.