Fletcher sharpens axe in forest asset review

By Mark Reynolds and Geoff Senescall

Fletcher Challenge Forests is looking at ways to cash in more than $2 billion its has tied up in forestry estates.

Options include selling some of the forests outright, or securitising future income from the trees to back an issue of bonds or capital notes.

Fletcher Challenge chief executive Michael Andrews has told international investment managers that realising some of the value tied up in forests is part of the group's strategy to withdraw capital from physical assets unless ownership offers significant competitive advantage.

Any cash that can be raised from the forests would be used to help the company become a manager of forestry-based businesses, rather than a grower and commodity trader of logs.

Mark Harris, investor relations manager for Fletcher Challenge Forests, said that so far no firm decisions had been taken. But he pointed out that when the company announced last month a plan to merge Fletcher Paper with Fletcher Challenge Canada, it said there would be an ongoing review of other assets.

"The fact is that 90 per cent of [Fletcher Forests] investment is in trees and it is underperforming the 10 per cent of assets that is in manufacturing," Mr Harris said.

The timing of any change would be dictated by international demand for forest assets.

Any disposal would also have to be mindful of tax losses that Fletcher has tied up in its forestry assets, and bank covenants it has in relation to its half-share in a Central North Island Forest Partnership.

Fletcher Forests owns half of the $1 billion partnership that bought the 164,000ha Kaingaroa forest from the Government in 1996, and 117,000ha of adjacent plantation forests.

Last month the company announced the sale of its 51 per cent stake in Forestal Bio Bio, a Chilean company with 50,000ha of forested land. The company used the cash generated from that sale to repay debt.

If Fletcher Forest sold its trees, it would become a manager of a number of businesses focused on forestry, including developing and making wood-based products for the Japanese housing, Australasian building, and North American moulding and millwork markets.

It would also operate a forestry management service and a forestry sales and trading business for industrial customers.

Fletcher Forest's main competitor in the New Zealand market, Carter Holt Harvey, has also considered securitising some of its forests here. But Carter already has the benefit of a much more vertically integrated wood operation than Fletcher.