Carter under no pressure to weed out forests

By PAM GRAHAM

Carter Holt Harvey is under no pressure to sell trees and any such decisions are its to make, according to Chris Liddell, the chief financial officer of the firm's majority shareholder, International Paper (IP).

Carter Holt has denied it has a "for sale" sign out on its forests, but the issue has not gone away because the company now has more forests than it needs and they are producing low returns.

Fletcher Challenge Forests' sale of its estate has brought forest ownership to prominence. There is also speculation that IP will take money out of the country while the New Zealand dollar is high.

Liddell said he did not want to sound patronising, but IP had a US$30 billion ($44.7 billion) balance sheet.

"In the overall context of a company the size of IP a return of capital, if that is what Carter Holt chooses to do, is not significant."

He said the major shareholder took an interest in strategy but the origination of it was local, as it had been when he ran Carter Holt.

The company's current imperative was the tissue business it was marketing. There was no current imperative on forests.

Carter Holt has said it would review options for its forests after the tissue sale. It has not denied that it has had approaches about its forests.

"There may be a case for selling down. I don't want to imply it will go one way or the other. It will be a rational economic decision like any other in business," Liddell said.

"Carter Holt is in a fantastic financial position. It can pretty much do whatever it wants."

The issues he expected to be traversed included what was the right level of ownership for processing businesses, how much was needed to retain security of supply and how much additional processing was planned in New Zealand.

"I don't think it is obvious that the company has to sell a whole lot of trees. It depends on price and what other uses they have for the capital."

Fletcher Challenge has argued that pension funds are better owners of forests because they have a long-term view and a lower cost of capital. Sharemarkets traditionally undervalue forests owned by companies.

Liddell said it would be interesting to see how that debate developed.

There was nothing inherently wrong with owning trees in a company structure, but trees should earn their cost of capital.

US-based Rayonier puts its timberland into a listed trust that returns most cashflow to shareholders and is tax-effective.

The structure worked for investors based in the US, but not for British- or New Zealand-based investors, Liddell said.

International Paper itself both bought and sold forests. It had 3.2 million hectares of timberland in North America alone.

Liddell said a particular level of the New Zealand dollar did not drive IP's decisions. It looked at long term trends, but the volatility of New Zealand's currency was a concern.

The New Zealand dollar had traded between 39USc and 70USc during the time IP had been invested in New Zealand.

A long-term trend going the wrong way in New Zealand was business compliance costs, he said, citing electricity costs and more inflexible labour laws.

"All the inherent costs of doing business in New Zealand have gone up. The long-term trend is to make it more difficult, especially from an exporter's point of view.

"When making 20-year to 30-year decisions you have to think about these kinds of things."

Carter Holt has capital expenditure plans of around $200 million across its Australasian businesses this year. It closed its Tokoroa sawmill last year, but is upgrading the Whakatane pulp and paper mill.