Cycle turns against forestry partners

By PAULA OLIVER

Fletcher Forests' biggest short-term problem is sorting out its dispute with its Chinese partner, and bank intervention is the most likely outcome, says its new chief executive.

Terry McFadgen took over Forests' helm as part of the Fletcher separation process, after five years heading the Building division.

He told the Business Herald yesterday that Forests' immediate outlook was affected by the Central North Island Forest Partnership dispute, and not much progress was being made to resolve it.

The partnership will break its banking covenants unless Forests and its partner, Citic, agree to inject more cash before the year is out. Mr McFadgen said the situation would not change between now and December 31, so the future lay with the banks.



The prospect of both parties putting in more money was looking unlikely, and a 50/50 split did not make economic sense.

If an agreement could be reached that required more money, Forests had a limited ability to pay it. But Mr McFadgen would weigh that against other investment opportunities.

Almost everything that drove Forests' earnings was at a low point of its cycle, and log prices might not pick up for another 6 to 12 months, he said.

But key Asian markets looked to be bouncing back.

Australia's slump in residential building meant more downtime over Christmas for Forests' Kawerau and Rainbow Mountain facilities.

But expansion looked likely in Australia and North America, where the strategy of turning logs into products before selling them was paying off.

Mr McFadgen, a former lawyer, admitted he had put himself in the hot seat by taking over Forests.

"But most seats are hot from time to time. They cool off."