Carter Holt invests $214m in China

By PAM GRAHAM

Carter Holt Harvey unveiled a leap into the world's fastest growing market yesterday as it considers selling forests in New Zealand.

It is paying US$134 million) ($214 million for an 85 per cent stake in Chinese company Plantation Timber Products.

That gives it two plants producing thin medium-density fibre board and flooring, a distribution network, a Chinese brand and 1700 workers in China.

The investment will increase the company's earnings per share in the first year and is predicted to return 15 per cent a year on Carter Holt's cashflow measure of investment returns.

Carter Holt has the New Zealand Government on notice to improve policies affecting business or lose investment in this country.

However, New Zealand's largest forestry company has clearly signalled that it wants to spread its operations into several countries and believes wood processing should be close to markets.

It makes about a 3.5 per cent return from its forest estate in New Zealand and has its ownership under review.

Chief executive Peter Springford said: "This investment gives us immediate scale in market processing close to our important Chinese customers."

Carter Holt already has investments in China, mostly in packaging, indirectly through International Paper Pacific Millennium, a venture with its major shareholder International Paper and Chinese investors. This, though, is its first big investment into China.

Springford, a New Zealander who led International Paper's business in Hong Kong before returning here, said Carter Holt would keep local management in China and put in its own executives.

Its 15 per cent partners are Shishou Forestry Bureau and Leshan Forestry Bureau, which supply wood to the mills.

The vendor was a Chinese family and private equity companies. Carter Holt's adviser was Deutsche Bank.

Springford said the purchase price was fair, and there was room to improve the investment by sharing skills and using spare capacity in the flooring part of the plants.

The company purchase does not have any debt but Springford would not disclose its after-tax profits. He said Carter Holt could repatriate cash as long as the company was making profits.

The Chinese plants produce 350,000 cubic metres of medium-density fibreboard compared to Carter Holt's current output of 600,000.

The Leshan plant was built in 1997 and the Shishou plant was built in 1999. The business can make 6.5 million square metres of flooring a year. It has a head office in Shanghai and 26 warehouses around the country.