Chinese whispers on Fletcher Forests sale

By GEOFF SENESCALL

Fletcher Forests is understood to have resolved differences with the Chinese Government-owned Citic, paving the way for a quick sale of the $1 billion Fletcher offshoot.

Sources close to Citic say settlement with Fletcher Forests over the disputed management contract of the Central North Island Forests Partnership is in sight.

Citic had taken court action in December last year to try to have Fletcher Forests' management contract terminated.

Its claim centred on allegations that Fletcher Forests was getting cheap logs from the partnership.

In the 1999 fiscal year some $50 million worth of logs were sold by the partnership to Fletcher sawmills.

Fletcher Challenge declined to comment yesterday on the Citic situation.

However, at last week's Fletcher special shareholders meeting the group's chief executive, Michael Andrews, indicated that he was confident of a resolution.

The dispute with Citic has clouded the sale of Fletcher Forests, which was put on the block back in March. It also put in jeopardy the sale of Fletcher Paper to Norway's Norske Skog. Fletcher Forests was forced to guarantee the supply arrangements between the partnership and the paper division.

Once an agreement with Citic is signed a sale of Fletcher Forests is expected to happen quickly, leaving the divestment of Fletcher Energy and Fletcher Building to complete the breakup of one of New Zealand's largest companies.

The prospect of an imminent deal with Citic saw the Forests share price rally 5c yesterday to 87c. Helping push the price was speculation that the the company had received a bid of more than 120c a share.

At least three parties are believed to have had a close look at the asset.

They are thought to be the US forestry investor Weyerhaeuser in conjunction with UBS Brinson, Boston-based company John Hancock Life Insurance (which several months ago spent more than $US150 million on Australian farmland to increase its investment portfolio) and Seattle-based Plum Creek Timber, one of the world's largest private plantation owners.

Weyerhaeuser is believed to have a close relationship with Citic.

It is unclear whether Citic's deal with Fletcher Forests includes the waiving of its pre-emptive rights over the 165,000ha forestry block in the central North Island should ownership change.

But there was speculation in the market yesterday that Citic might be angling to buy Fletcher Forests out of the partnership, which has annual sales of around $500 million.

Citic, with Brierley Investments and Fletcher Challenge, bought the former Government-owned Forestry Corporation forests in the central North Island in September 1996 for $1.6 billion, net of debt.

Two years later, Brierley used an exit clause in its contract, leading to Citic and Fletcher investing a further $US126 million into the venture to cover its losses.

Should Fletcher Forests fail to find a buyer, its shareholders face some sort of capital raising to address its debt-laden balance sheet. Fletcher Forests has consolidated debt of around $1.1 billion. It has a market capitalisation of around $740 million.