Hancock bows out of cutting rights sale

One of the world's biggest timber management companies - Hancock Timber Resource Group - has walked away from Carter Holt Harvey's $400 million tree sale, investment bankers say.

Hancock was one of the shortlisted bidders for the cutting rights to 95,000ha of trees - or about a third of the company's estate by size and a quarter by value.

The book value of the rights is about $400 million, and one source said indicative bids were $420 million to $440 million.

Investment bankers say DB Capital Partners - the private equity arm of Deutsche Asset Management in Australia - remains a bidder, along with an investment vehicle of Australia's Macquarie Bank.

Hancock is based in Boston, Massachusetts, and describes itself as "the world's largest timberland investment manager for institutional investors", with assets under management of US$2.7 billion ($3.8 billion) at March 31.

The bankers believe Hancock's exit leaves the sales process without any of the so-called "TIMOs" - timber investment management organisations such as Hancock, PruTimber and GMO Renewable Resources.

Some observers had picked TIMOs as the most likely buyers.

These organisations featured in some of the biggest New Zealand forestry deals this decade, acting for clients such as Harvard University's endowment fund and the Ontario Teachers' Pension Plan.

One investment banker wondered aloud why the TIMOs - "who arguably know the most about trees" - had failed to match others' bids.

But some observers say the TIMOs were never likely buyers because the forests for sale are not the most attractive in CHH's estate for location and quality.

An investment banker said TIMOs sniffed around, but "it didn't include any of the forest estates that they would be interested in".

CHH wants to jettison all of its Canterbury and Hawkes Bay trees, as well as parts of the estate in Auckland, Coromandel and Bay of Plenty.

Neither Kinleith, which generates the highest cashflows, nor forests in Northland and Nelson, are for sale.

The whittling-down of bidder numbers throws an extra focus on what some of Deutsche Bank's rivals see as a conflict of interest: Deutsche in Auckland running the sales process while a Deutsche-linked entity in Australia is making a bid.

Deutsche will not comment on the sales process. Its argument is likely to be: the entities are separate and the Chinese walls work.

CHH says it will update the market on the sales process in July.

The company is also selling 30,000ha of freehold land, which could be worth about $75 million.

Top five owners

1. Carter Holt Harvey, 305,000ha.
2. Kaingaroa Timberland (Harvard), 162,000ha.
3. PruTimber, 66,000ha.
4. Weyerhaeuser, 60,000ha.
5. Ernslaw One, 55,000ha.
Source: Ministry of Agriculture and Forestry