Forest foes retying the knot

By CHRIS DANIELS

The saga of the Central North Island Forest Partnership is drawing to a close, with the vast forest estate likely to be owned once again by Fletcher Challenge Forests and the investment arm of the Chinese Government.

Receiver Michael Stiassny, on behalf of a consortium of banks eager to have their outstanding $1.34 billion in loans repaid, has been searching for 18 months for a buyer for the 163,000ha estate and three sawmills.

It appears he has now succeeded, with the forest soon to be owned by the same people who drove it into receivership.

But Fletcher and Citic swear that their previously acrimonious relationship has been patched up, with a new relationship and a better way of doing things.

Instead of the previous Central North Island Forest Partnership (CNIFP) structure that "lent itself to conflicts of interest and inherent tensions", the partners said, Citic would this time simply buy a big stake of Fletcher and let it run the forest.

Under the previous arrangement, Fletcher managed the forest on behalf of the 50-50 partnership, but Citic claimed Fletcher was running things for its own, and not the partnership's, benefit.

By and large the deal announced yesterday is the same as that outlined by Fletcher in late May, when it was left as the last bidder in the race to buy the forest estate.

It has been sold for $1.34 billion - money that goes straight to the receiver, then on to the banks that lost money when the partnership collapsed.

Citic will become the cornerstone shareholder, owning 35 per cent of Fletcher.

Rubicon gets out of its 17.6 per cent stake, in exchange for 11,874ha of Fletcher-owned forest and $48 million in cash.

While Citic obviously has more influence than it did under the old arrangement, Fletcher is promising that it will not simply become the New Zealand branch of the Chinese firm's forestry ambitions, stressing that it will be a truly independent, locally listed company.

It swears there are no deals with the Chinese for sending logs to feed its growing demand for wood.

Citic will repurchase the forest through a Hong Kong-listed company, South East Asia Wood Industries Holdings, which will pay $413 million for its new shares in Fletcher Challenge Forests.

This represents 37c a share, an 85 per cent premium to the pre-announcement market price.

Fletcher says this is a negotiated figure "having regard to both market analyst valuations and the company book value as at December 31 of 39c per share".

Fletcher will then borrow the rest of the purchase price from BNZ and HSBC.

BNZ is no stranger to the Fletcher/Citic/CNIF saga - it was the lead bank in the consortium owed $1.34 billion when the partnership went into receivership 18 months ago.

Existing cornerstone shareholder Rubicon - which will get rid of almost all its 17.6 per cent shareholding in Fletcher - finds itself the proud owner of a forest, the Tahorakuri Estate.

Although Rubicon has been trying to get out of forest investment, its management feels selling a forest will be easier than waiting to get a good price for its Fletcher shares.

Announcing the deal yesterday, Fletcher chairman Sir Dryden Spring said the reconciliation with Citic had not happened overnight.

Relations between the partners had steadily improved over the past 18 months.

This time around, he said, there would be one set of assets under a simplified ownership and operating structure.

Citic Australia managing director Zhang Jijing said the previous partnership had been forced to cope with the effects of the 1997 Asian economic crisis, as well as an unsatisfactory ownership structure.

But Citic had a long history of forestry investment and a commercial decision had been made to once again invest in the best plantation forests in the world.

Sir Dryden, despite stressing that Fletcher would run as an independent company, with Chinese deals being done at arm's length, said the involvement of Citic would improve access to the increasingly important Chinese market for wood.

Although buying the CNIF would take Fletcher over its preferred debt levels, Sir Dryden assured his audience yesterday that this higher level of debt could be managed.

* An information memorandum, including an independent expert report, will be sent to Fletcher shareholders in about a month.

A shareholders' meeting is due in mid-August.

If approved, the purchase should go through by the end of September. Various regulatory approvals, including the assent of the Overseas Investment Commission, are needed before the deal can proceed.