Asian interest likely in Hart sale

Graeme Hart. Photo / Supplied

Graeme Hart's Rank Group can expect strong interest from Asia for Carter Holt Harvey's New Zealand pulp, paper and packaging assets, says an independent analyst.

But high wood pulp prices could prove a disincentive for potential buyers who may fear the market is nearing its peak.

Reuters reported last week that Rank Group was seeking to sell Carter Holt Harvey's pulp, paper and packaging assets in Australia and New Zealand ahead of a refunding deadline in December. Credit Suisse, Rank's preferred brokerage for many of Hart's high-profile deals, is understood to be in charge of the sale process.

Hobart-based analyst Robert Eastment said high pulp prices could prove a sticking point, as potential buyers would want to buy nearer the bottom of the cycle to capture any upswing in prices. He said the high value of the New Zealand dollar could also prove a disincentive.

The price of wood pulp - the base material for a wide range consumer goods - has nearly doubled in a year. The benchmark - Northern bleached softwood kraft pulp - last traded around US$1008 a tonne - which is the highest point since the mid 1990s.

"We are very close to what is likely to be a peak," Eastment said.

Prices in the local packaging market, which is dominated by Carter Holt Harvey, are also understood to be high, driven by strong demand from New Zealand's primary export sector.

Eastment said Carter Holt Harvey's transtasman rivals, listed packing group Amcor, and unlisted Visy - which already have a big presence in New Zealand - were unlikely contenders for the assets, given the likely regulatory hurdles that they would need to clear.

The company has four mills - Kinleith, Tasman, Whakatane, and Penrose. Kinleith, which is near Tokoroa, is the company's biggest, producing bleached and unbleached softwood kraft pulp and a range of linerboards and medium used in packaging.

"The crown jewels would definitely be Kinleith," Eastment said.

"It is now a very efficient mill and he [Hart] has invested a lot in it.

"I think there will be more interest in those assets from Asia than from anywhere else.

"A challenge for any prospective buyer is that with the New Zealand dollar being reasonably strong, the assets will be priced at or above expectations when converted into most major trading currencies, but when pulp is manufactured and sold in US dollars then it will be harder for the New Zealand mills to make a reasonable margin," he said.

"It is likely a company that would show interest is a 'pull-through' company - one that makes the pulp in New Zealand and then uses it itself at another location - rather then trying to place the pulp on the open market."