Carter aims for lift from move into China

By PAULA OLIVER forestry writer

Timber giant Carter Holt Harvey has taken a bold step into China as it tries to lift its performance in Asian markets.

Chief executive Chris Liddell yesterday said Carter Holt had taken a 25 per cent stake in China-based paper distribution business Pacific Millennium Paper Group, a privately held company.

Carter Holt's parent company, International Paper, has also taken a 25 per cent stake in the business.

Mr Liddell would not say how much the move was costing Carters, because the private Chinese partners did not want the figure revealed. He described it as a small to medium-sized purchase.

"It's significant from a strategic point of view, because Asia and China are particularly critical for us," Mr Liddell said. "It's a huge step up in terms of what we have wanted to do with distribution, because this company has considerable knowledge of the local markets."

Pacific Millennium Paper supplies forest products to China, Hong Kong, Taiwan, Japan, Korea and the Southeast Asian market. Its main businesses are paper and board distribution, and box manufacturing. It employs 1200 staff in nine offices, and has two main logistics hubs in San Diego and Hong Kong.

Pacific Millennium Paper has been operating for at least 15 years, and had sales of $US350 million ($833 million) last year.

Analysts spoken to by the Business Herald yesterday said the move into distribution was positive, but it was difficult to evaluate without knowing how much it cost. One said the move was brave, because China had almost become a graveyard for recent New Zealand business ventures.

"Buying a stake in a distribution arm is not a bad idea - the question is how much they put in relative to how much they get back," said ABN Amro's Dennis Lee.

"When you're dealing in commodities, if you don't have distribution set up, then your product is the same as the one next door. Good distribution gives a competitive edge."

It was better to have your own network than to rely on an agent, he said.

JP Morgan's Arthur Lim said other local businesses had struggled when trying to enter China, because many underestimated the difficulties of trading and of dealing with their competition.

Lion Nathan is one company to have floundered in China - its brewery lost $35 million in 13 months to September last year. Other ventures to have run into trouble include Fletcher Challenge's investment in a Chinese steel mill.

But Mr Liddell said that Carter Holt's move was different.

It had the combined strength of International Paper and Carter Holt, and it was a business already making money.

"It's important for us that it's a low-risk approach - we're investing in a business that's already established, with people already known to International Paper," he said.

"It's not a huge amount of money, and we're not building the plant from scratch."

Mr Liddell said it was important for Carter Holt to stand up, be bold, and take a leadership role.

Carter Holt's future has been widely debated in the past week, after its share price spiked at $1.90 from a January low of $1.54. Rumours surrounding the intentions of its parent company, International Paper, which holds a 50.3 per cent stake, have been widely circulated.

But Carter's share price has steadily returned to earth this week, falling 6c yesterday to close at $1.80.

Mr Lim said its fall could partly be attributed to a fall in a global pulp and paper index, indicating a soft market. But its sharp drop yesterday could also partly be a result of an absence of financial information surrounding the China deal.

Most analysts agreed with Mr Liddell's comment that it was now a reasonably good time to be buying assets. More could soon come onto the market after pulp giant Asia Pulp and Paper revealed yesterday that it would soon default on $US12 billion of debt. That company's problems could spell opportunity for local companies, Mr Lim said.