Fletcher Paper rumours delay Natural Gas split

By Geoff Senescall

Uncertainty over the future of Fletcher Paper has put the restructuring of Natural Gas on hold. At the centre of the delay are United States securities regulations, which have held up the sale of a $300 million loan made by Natural Gas to Fletcher Challenge. That sale is a final hurdle in the plan to split Natural Gas into three separate entities.

The loan was made to Fletcher Challenge around seven years ago at a time when Fletcher sold down its Natural Gas shareholding. Natural Gas now plans to sell that debt, and a prospectus and investment statement to place the bulk of it into the United States has been ready to go for about three weeks.

Unless the sale goes ahead today, the documents will expire and will need to be renewed. Local brokers are also awaiting developments. They have been asked to place around $10 million of the loan by way of inflation-adjusted shares. This has already been promised to clients.

The sale of the loan hit a road block after rumours emerged around three weeks ago that one of Fletcher's letter stocks, Fletcher Paper, was about to be sold. Adding credence to that speculation was a memo which leaked out from the Fletcher group detailing plans to sell Fletcher Paper.

Fletcher has not denied the rumours. One broker spoken to yesterday, who declined to be named, believed that the sale could be less than two weeks away. If Fletcher Paper were sold it would have a major impact on the Fletcher group's credit worthiness. This, in turn, would have a significant effect on the loan, whose credit risk resides with Fletcher Challenge. US regulations stipulate that an issue cannot be made while there is the possibility of a major transaction outstanding.

Until that situation is clarified, the process cannot continue. Meanwhile, the hold-up in selling the loan has coincided with a fall in US bonds. This makes the Fletcher loan less attractive. The delays have also caused uncertainty about Natural Gas' restructuring plans, which were announced last November.

The planned split of Natural Gas basically separates the interests of the company's two main shareholders,, Fletcher and Australian Gas Light,, both of which own a third. AGL will control marketing and distribution, with Fletcher to command processing assets. The gas transmission lines will, for now, be shared. Minority shareholders in Natural Gas will get shares in all three groups. Judging by Natural Gas' sagging share price, the market appears to be unimpressed by this scenario.


US red tape holds up the sale of $300m loan, possibly forcing an extended document deadline.