A forestry giant may rise from ashes

By PAULA OLIVER forestry writer

A much larger forest owner could emerge from the ashes of the Central North Island Forestry Partnership.

Market sources indicate that a joint bid between Carter Holt Harvey and Fletcher Forests could involve Carter's adding some of its own forests to the already giant pot.

The result would be a separate forest holding company with up to 350,000ha of Central North Island trees.

Market rumours have persisted for weeks that the country's two largest forestry companies have talked about a joint bid for the 168,000ha estate. Both refuse to confirm the speculation.

But the partnership's receivership and subsequent sale is looking increasingly like a two-horse race. Its former joint owners, Fletcher Forests and Chinese Government-owned Citic, now bitter rivals, have expressed interest in the estate. Their joint venture fell into receivership in February after it failed to combat falling log prices.

Citic is expected to launch a bid on its own.

But Fletcher Forests must find at least one partner to help it pay for a bid. Speculation is mounting that Carter Holt Harvey is likely to be one of those partners.

Market sources indicate that Carter Holt could put some of its own forests into a separate Central North Island forestry holding company. An obvious Carter's forest to add is the Kinleith forest - at around 130,000ha.

The advantages of such a move are plentiful, analysts say. Even with a large forest, there are often gaps in the age of the trees. To meet processing demand, companies often fill those gaps by buying from a third party. But if Kinleith was combined with the partnership estate, few gaps would exist.

Similarly, there are obvious synergies in the area of harvesting and the proximity of trees to processing plants.

"The large players have a lot of downstream activity, and they need security of supply for that," said one forest industry leader.

The Central North Island region is home to 570,000ha of trees. Most of these are owned by the former partnership and Carter Holt Harvey. Smaller lots are owned by Rayonier, the Crown, Winstone Pulp, and various forestry investment companies.

Carter Holt Harvey chairman Sir Wilson Whineray told the company's annual meeting last week that Carter's had enough trees, and didn't need any more.

But analysts say that statement is ambiguous.

"They say they don't want to acquire new trees, which is correct," an analyst said.

"But they might be quite happy to throw some trees into a new company.

"That could also provide them with an easier opportunity to cut their forest ownership at a later date, if they wanted to."

But the proposition is certain to run into Commerce Commission hurdles.

To temper this, a third party would be added.

Names like Juken Nissho, a Japanese processor which recently announced an expansion of its Northland plant, are being tossed around in the market.

Wayne Coffey, Timber Industry Federation executive director, reacted strongly to the prospect of a joint Carter's and Fletcher proposal when it first appeared three weeks ago. His concerns centred on dominance.

But some in the industry say that safeguards could be worked out in the supply contract arena.

A raft of agreements, which could include a requirement to conduct stumpage sales, could be formulated to gain GlobalCo-like approval.