Forestry loan a toehold in NZ for giant insurer

By PAM GRAHAM

Why does an American company with a US$47 billion ($83 billion) debt portfolio bother to lend $18 million to Evergreen Forests, a company barely on New Zealand investors' radar screen?

"We did ask ourselves," said Whit Hill, a corporate finance executive with John Hancock Life Insurance, which has just announced the loan to Evergreen, its second in New Zealand.

The 6.88 per cent interest rate fixed for 10 years was not particularly attractive compared with rates in North America. But the loan was an opportunity to get to know New Zealand, where the insurer wants to do more business.

John Hancock Insurance has been financing forestry companies for 50 years and is willing to lend for between seven and 20 years because the loans match its own long-term liability profile.

Banks typically do not lend for more than seven years.

"We are basically attracted to the productivity of the New Zealand forest plantations and we respect and appreciate the silviculture expertise that New Zealand has developed over time," said Hill.

"We have known each other for quite some time and the timing finally worked."

The Boston-based insurer had written one small private loan in New Zealand before the Evergreen deal. John Hancock lends a total of US$3.5 billion to the forest sector.

"In the grand scheme of things we are early into the development of New Zealand as part of our portfolio and we want to work into the industry and learn about it."

Hill works on loans, bonds and other debt instruments for the insurance part of John Hancock Financial Services group, which also has a fund that invests in forestry land.

The fund declined interviews about whether it is interested in buying New Zealand forests.

(In January, American firm UBS Timber Investors agreed to buy cutting rights to 8 per cent of Fletcher Challenge Forests' estate.)

Evergreen chief executive Mark Bogle said the loan replaced vendor finance on a previous purchase and it drew the money down at an exchange rate of 54.2USc.

The company, which had a market value of $79 million at yesterday's share price, has assets worth about $200 million funded by $120 million equity, $26 million of 10-year, zero-coupon convertible notes, the loan from John Hancock and $36 million of loans from Westpac with a five-year term.