Citic fans flames of forestry stand-off

By GEOFF SENESCALL

Control of the Central North Island Forestry partnership is headed for the banks as the dispute between the asset's warring owners hits rock bottom.

Fanning the feud were Citic's allegations yesterday of racism by the Fletcher Challenge chairman, Roderick Deane, following comments he made about there being "cultural differences" between the two parties.

Chinese-owned Citic left the allegation out of an amended statement issued later in the day but that did not stop a sharp rebuke from Fletcher Challenge chief executive Michael Andrews and Dr Deane.

This latest escalation further reduces the likelihood that Citic and Fletcher Forests, the joint owners of the asset, will agree to inject cash into the partnership to avert a breach of its banking covenants and possible receivership.

In a statement, Mr Andrews rejected suggestions of racist overtones, describing Citic's actions as provocative, ill-informed and inaccurate.

Dr Deane was also unimpressed. "I think it is sad that they felt the need to descend to that type of level in terms of attacking an individual.

"I thought it was bad, it was unfortunate, it was defamatory and does not really help to progress matters ...



"I would not wish to respond in any way at the same type of level."

The dispute between Fletcher Forests and Citic, which is owned by the Beijing Government, has been festering since 1996 when a consortium, which included Brierley Investments at the time, bought the cutting rights to the giant Kaingaroa Forest in the Bay of Plenty from the Government.

Late last year, Citic took legal action against Fletcher Forests for alleged mismanagement of the estate.

It is claiming $319 million in damages against Fletcher Forests on behalf of the partnership - meaning the total potential cost to Fletcher Forests is $159 million, given that it owns half the partnership.

Citic's New Zealand managing director, Cui Peisheng, says Fletcher is overcutting the forests and Fletcher Forests mills are being given favoured status in purchasing logs.

Mr Cui is also disputing $US161 million in tax losses the partnership acquired from Fletcher Challenge.

This latest spat comes while Fletcher Forest is in the midst of a hefty $427 million rights issue to shore up its ailing balance sheet.

Saying that relations had become "very strained," Mr Cui said Citic preferred receivership over injecting new capital into the partnership, which would lead to wealth being transferred to Fletcher Forests.

"Fletcher Forests contends that in the event of receivership, it will receive back all or at least some of its subordinated debt," he said.

"There are legal options open to us which makes that contention a very uncertain and lengthy process.

"Receivership also places at risk its ability to meet the terms of its guarantee to supply pulpwood to Norske Skog and to continue to supply Forest partnership logs on its own terms to its own mill facilities."

However, Dr Deane indicated yesterday that it was likely that the banks would continue to allow Fletcher Forests to manage the estate even if the partnership fell into default and the assets were seized.

Fletcher maintains that it has invited Citic to resolve the commercial disputes on several occasions through formal arbitration.

But it says these invitations have been declined, "which suggests to us that Citic wish to avoid resolution, for their own purposes."

The Chinese, on the other hand, say that Fletcher Forests has consistently underestimated Citic's determination to seek a fair resolution of the disputes between the two organisations.

Fletcher Forests closed down 1c at 24c yesterday.