Rubicon stalls in second half as asset sales dry up

By CHRIS DANIELS

Fletcher Challenge spin-off Rubicon has earned a net profit of $30.4 million for its first year of business on revenue of $73.8 million, but has been losing money in the past six months.

Chief executive Luke Moriarty described the result as a "strong maiden profit result", that had been hit by problems in the Argentine economy.

Rubicon made big money in its first six months of business, when it sold the Challenge chain of petrol stations for $50 million, its stake in Capstone Turbine Corporation for $44 million and its Brisbane fuel terminals for $22.4 million.

But a $5.4 million loss on its Argentine forestry company Forestadora Tapebicua and spending $5.2 million on its ArboGen biotech research company contributed little to progress in the second half of its debut year as a listed company.

Moriarty said the $30.4 million profit "largely reflects the significant transactional achievements we have made in the realignment of our business portfolio".

But it is the possibility of one big realignment for Rubicon - swapping its Fletcher Challenge Forest shares for a large tract of actual forest, that is occupying the minds of Rubicon investors.

Rubicon wants to sell its 17.6 per cent stake in Fletcher, but a proposal announced on Monday offers trees rather than cash for the shares. The Fletcher stake accounts for nearly half Rubicon's asset base and achieving full value for the shares is Rubicon's top priority.

The trees it could get in exchange for its shares would come from existing forests owned by Fletcher. Some analysts believe these trees will be easier for Rubicon to sell at a good price than its shares in Fletcher Forests have been.

In Rubicon's investment statement and prospectus issued in January last year, the company's plan for its Fletcher shares was outlined.

"Rubicon believes the current trading price of 30 to 35 cents per Fletcher Challenge Forests share to be significantly below fair value," it says.

It says that Rubicon's intention is to "actively monitor the operational and strategic direction of Fletcher Challenge Forests, to maximise the value of the strategic stake that Rubicon holds".

"We will only divest our shareholding in Fletcher Challenge Forests if the board's assessment of full value has been achieved."

Fletcher Forests shares closed up 2c to 26c yesterday, after a 20 per cent gain on Monday, triggered by news that it was back in the hunt for Central North Island Forest Partnership assets.

Fletcher company secretary Paul Gillard said yesterday that there had been no news from the receiver about the state of negotiations for the CNIF.

The company is waiting to hear about the status of the bid by Peter and Philip Vela, the Waikato brothers trying to buy the forest.

Provisions of the Takeovers Code apply to the proposed Citic buy-in to Fletcher but not to the Rubicon side deal, which falls below the 20 per cent ownership threshold.

Because Citic now wants to buy 35 per cent of Fletcher, the deal must be approved by existing shareholders. If they approve the arrangement, then Citic will pay the 37c a share for its stake in the company.

This will be a new injection of equity into Fletcher of $430 million.

Moriarty said the focus for Rubicon in the future was bringing value to its shareholding in Fletcher Forests, commercialising its existing forestry biotechnology portfolio and "exploiting appropriate new investment opportunities".