Chinese chase the Fletcher votes

By CHRIS DANIELS forestry writer

A Chinese charm offensive, designed to soothe doubts about the sale of a cornerstone stake in Fletcher Challenge Forests, has begun.

Fletcher shareholders will soon be asked to approve its US$650 million ($1.32 billion) purchase of the Central North Island Forest Partnership assets, which it owned with the Chinese Government's investment arm, Citic, before the partnership went into receivership.

Citic is putting $407 million into Fletcher through the Hong Kong listed company South East Asia Wood Industry Holdings (Seawi), and will own 35 per cent of the company.

But the deal will die without Fletcher shareholders' approval - and some will need a great deal of convincing before voting in favour.

When the deal was announced by Fletcher last week, it said Citic would have influence only at board level as an investor.

No trading or supply arrangements would be made with it or Seawi.

The involvement of Seawi and its chairman, Peter Kwok, has attracted some scrutiny from New Zealand observers, and his personal ownership of a large block of Seawi shares is being examined.

Kwok yesterday presented his case, standing alongside Citic group executive, director and vice-president Mi Zengxin.

The two answered questions with confidence, saying there was nothing unusual in the Citic-Seawi arrangement and that Fletcher would stay independent.

Both said they were investing for the long-term benefit of all, and Citic was using the small Hong Kong company to buy the forest for perfectly good reasons.

Kwok said Seawi's motives were clear - it was buying into Fletcher at 37c a share because it believed the price would rise.

"The shareholders should believe in that - we've backed our belief with cash."

Kwok said the involvement of Seawi and Citic would be beneficial to all shareholders.

"We are putting our money into the shares of the company. We have put 90 per cent of our assets in the one company, which is Fletcher.

"If Fletcher does not benefit as a company, then our 90 per cent will be a loss. We benefit because Fletcher benefits.

"As of now, 90 per cent of our income will come from Fletcher. We have to bet on Fletcher."

Citic, said Kwok, wanted to go through a publicly listed, transparent company that was "open to the scrutiny of the international markets".

Mi said Kwok's deal-making ability and experience meant Citic could use Seawi again for raising capital.

Fletcher shareholders are waiting for detailed information about the Citic deal to be sent to them before being asked to approve it.

Much of the opposition to the deal centres on the sell-out of cornerstone shareholder Rubicon.

It has been able to get rid of its 17.6 per cent stake in Fletcher, getting $48 million cash from Seawi and the Tahorakuri forest, both of which value its stake at 37c a share.

Many smaller shareholders say they should also be offered 37c a share to quit their stakes.

Shareholders Association chairman Bruce Sheppard said the big institutional shareholders in Fletcher wanted the deal to succeed so they, like Rubicon, could get out of the company at a decent price.

They had believed their own stories, said Sheppard, hoping that the success of the deal would lead to a spike in the share price.

They would then get out as quickly as they could, leaving the many small shareholders in the lurch.