Fletcher keeps control of forestry

By LIBBY MIDDLEBROOK

Fletcher Challenge will retain management control over the country's largest forestry plantation, after its joint-venture partner Citic lost a bid to cancel its contract.

The High Court dismissed an injunction sought by the Chinese Government-owned forestry investor this week, which related to the way Fletcher Forests was managing its Central North Island Forest Partnership 165,000ha forestry block in the central North Island.

A wholly owned subsidiary of Beijing-based China International Trust & Investment Corp, Citic sought to stop Fletcher selling the partnership's logs to itself for domestic processing without the partnership board's permission.

"Citic would prefer to see more logs going offshore but Fletcher is of the view that adding value in New Zealand through processing is a better route for the partnership," said Fletcher Forests' Ginny Radford.

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

Citic, which estimates that it is losing between $25 million and $30 million a year, thanks to the dispute, filed court proceedings in December last year.

The dispute had its origins in the Asian collapse in 1997 which brought log prices crashing. A Douglas fir plantation that the partnership expected to harvest to cover their initial costs fell substantially in value.

The High Court's Justice Potter said the interim injunction sought by Citic would be counterproductive and suggested the two parties resolve the dispute via arbitration in order to "reap the rewards" of their investment.

Citic New Zealand's general manager of operations, Greg Molloy, said the company would make a statement by Saturday.

Ord Minnett's David Shirer said it appeared that Citic's case was fairly thin given the judge's decision and recommendations.