Hancock chiefs pleased with quality purchase

By PAM GRAHAM

Hancock Natural Resource Group, the biggest US timber management company, has at last done a deal in New Zealand after 10 years of looking.

On Friday, it bought the right to cut one rotation on 40,000ha of land in the central North Island, including Tarawera and Matahina forests, the so-called jewels of the former Fletcher Challenge estate.

And Dan Christensen, the group's chief executive and president of the wider Hancock Timber Resource Group, with the company's Australia-based managing director, Bruce McKnight, at last agreed to be interviewed.

By way of background, listed forestry companies pretty much everywhere have been selling trees to timber management organisations (Timos), who put together and oversee forest investments for groups of pension and endowment funds or very large single clients.

Hancock was a pioneer. It has done about 60 transactions and manages 1.13 million ha of forests in the US, Canada and Australia.

Rival Timos such as GMO Renewable Resources, Global Forest Partners and Prudential are already here and a single client of GMO's, Harvard Management Co, bought cutting rights to the 165,000ha Central North Island Forest Partnership estate.

The result is that forest ownership in New Zealand is diversifying and the new owners have no interest in processing.

They do have an interest in encouraging demand for wood, which they say will facilitate investment in mills.

"We like to have some stable wood supply agreements as part of our mix, but we have wood available to put in the open market," said McKnight. "We supply processors with good supply because it makes for a much more viable industry."

Christensen said Carter Holt Harvey was Hancock's biggest customer in Australia.

One reason Hancock invested in New Zealand was that it provided diversification, but it also saw the country as "a good investment geography".

"It is different in that its industry is based on export. But it has high-quality products going into North America," he said.

Both North American and Australian investors supported the New Zealand investment and one of the six funds that took part was Hancock's new parent, Manulife.

Manulife Financial Corp of Canada paid US$13.9 billion ($22.4 billion) for John Hancock Financial Services Corp in April to create the second-biggest insurer in North America by market value, said Bloomberg News.

Christensen said one of the attractions was that Hancock had a timber management arm.

With Carter Holt Harvey due to make a decision by October on whether it wanted to remain the biggest forest owner in New Zealand, there was clearly more scope for the Timos in New Zealand.

Christensen said Hancock looked at all large forest estates that came up for sale.

"We're always looking. Our investors are very large institutions; they like to acquire investments that are good quality. They are not here to acquire small or insignificant assets." Carter Holt's forests are seen as lower quality in that they are pruned less often.

Critics say the Timos are buying forests cheaply at the bottom of the cycle. They can afford to wait for commodity prices to recover and they have higher returns because their cost of funds is lower.

Their commitment to a local industry remains to be seen.

Christensen said Hancock bought one rotation because that was what was offered.

The vendor was Kiwi Forests Group, a group of Auckland property investors who ended up with the freehold land from the Fletcher estate after warehousing cutting rights to Timos.

They have not revealed their plans for the land but it is likely it will be converted to more profitable dairying or lifestyle blocks.

Christensen would not say what kind of return his investors expected to make here, but he did say that North American investors required a higher rate of return when they invested outside their own region.