Fletcher drawn further into legal woods

By GEOFF SENESCALL

Fletcher Forests can expect to be drawn deeper into a legal maze if its Central North Island Forestry Partnership falls into receivership.

Fletcher's Chinese partner, Citic, confirmed yesterday that it intended gunning for the major share of any wash-up from the failure of the teetering partnership.

In its sights are $US161 million ($400 million) of unrealised tax benefits that Fletcher Challenge sold to the partnership when it was formed in 1996.

Citic disputes the validity of the benefit and wants compensation before Fletcher Challenge is repaid any of its $US230 million in subordinated debt.

But Fletcher Forests' new boss, Terry McFadgen, said it would vigorously defend any such bid by Citic.

"Our view is that it is just more noise," he said. "This reflects the fact that Citic overpaid for the asset, as we ourselves did, and they are just going to have to accept that."

According to Citic spokesman Greg Malloy, the $US161 million tax benefit was in dispute from the beginning.

"It has never been quantified. It has never been resolved," he said.

"Citic's view is that it should be a whole lot less than $US161 million. It could be zero. That is what we will argue in court."

This demand, Mr Malloy confirmed, was over and above Citic's $318 million claim for damages against Fletcher Forests.

Unless the pair can resolve their festering legal disputes by year's end, the banks are likely to be left with little option but to put the Central North Island partnership under early in the new year.

It is understood that the banks are looking for a cash injection of around $100 million as well as a further principal payment of around $25 million. But both Citic and Fletcher Forests are unwilling to put more cash in while they are at loggerheads.

The banks are owed $US650 million, which ranks ahead of the subordinated debt held by Fletcher Forests.

Mr Malloy said that anything left over in a forced sale would be fought over.



Mr McFadgen said that Citic had never taken up the offer of arbitration.

"I wonder why? What Fletcher said back in 1996 when the mortgage to us was issued - and Citic did raise the fact that they wanted to discuss the amount of the calculation of the tax assets, so it is a calculation issue - was that certainly we were prepared to discuss it and to look at any concerns they might have about calculation.

"Citic for a long, long time did absolutely nothing.

"When we did get some very low level of data from them as to what their concern was, that data did not give us any basis for thinking that the tax valuation amount was incorrect."