Carter Holt on debt ratings tenterhooks

By Mark Reynolds

Investors in Carter Holt Harvey face an anxious couple of months as credit ratings agency Moody's Investor Services reassesses the company's ability to repay its debt.

Moody's has told Carter Holt it is considering a downgrade of its ratings, which could substantially increase the repayments the forestry company must make on its $2.9 billion worth of borrowings.

Carter Holt is already at the edge of an important investment ledge when it comes to its credit worthiness as measured by Moody's. It has a senior unsecured rating of Baa2, which just qualifies as the critical investment-grade. If Carter Holt dropped below investment-grade then many of its current foreign lenders would not be able to deal with the company, and it would have to pay more for future borrowings.

"It would not be a good situation," said Carter Holt's chief financial officer Mark Godbold.

But Mr Godbold said the company was confident it was doing enough to stave off a possible downgrade.

"Frankly we're a bit surprised they've put us under review for a downgrade," Mr Godbold said. "I think over the past couple of years we've taken a number of initiatives that should give [Moody's] some confidence that we are on the right track."

The moves have included a programme of cost cutting and productivity improvement called Genesis, which saved the company $96 million in its latest financial year. Carter Holt also reduced its final dividend 40 per cent in response to a sharp drop in earnings.

Moody's said it was aware of these changes but wanted to continue to evaluate the company's ability to improve its earnings.

"We believe the operating performance is being greatly affected by the Asian financial crisis and the weak global forest and paper product prices," Moody's said.

Mr Godbold said prices and demand for Carter Holt's products had improved over the past couple of months, and expected Moody's to take this into account.