Forest falls to Fletcher Challenge

The buyer has five weeks to satisfy finance conditions, DANIEL RIORDAN reports.

Fletcher Challenge Forests is buying the Central North Island Forest Partnership, although details of the deal's value and structure remain sketchy - including where the money is coming from.

The deal is subject to shareholder approval and Fletchers must satisfy several conditions in the next five weeks, including financing and regulatory approvals.

The company has a temporary waiver from the Stock Exchange rule requiring a buyer to explain how it will pay for a purchase if the price is worth more than 10 per cent of shareholders' funds.

The partnership owes its banks about US$640 million ($1.5 billion) and Fletchers, which owns neighbouring forests and manages the partnership's trees, said last month that it doubted any buyer would pay more than that.

Analysts do not expect Fletchers to pay for the purchase in cash, and say it will need a partner to provide the money.

The 190,000ha forest was placed in receivership a year ago when its owners, Fletcher Forests and China's Citic, decided not to invest the money needed to ensure its balance sheet complied with its banking agreements.

Fletchers bought the former Government-owned forests in 1996 with Citic and Brierley Investments for $1.6 billion excluding debt.

The business lost money almost from day one after douglas fir prices collapsed following Asia's economic crisis.

Brierley later sold out to its partners.

Fletchers declined to elaborate on the brief announcement it made to the Stock Exchange on Thursday.

The partnership's receiver, Michael Stiassny of Ferrier Hodgson, also declined to provide further details, but said he never doubted a buyer would be found.

"The asset has an intrinsic value. It's a great forest and there would be someone who was going to pay a fair price. It was just getting one of those people to paper."

He was confident the deal with Fletchers would proceed.

"We would not have entered into an agreement if we did not believe it was capable of completion."

Citic was also understood to have been in the running.

US-based fund manager Xylem Investments, one of Fletchers' biggest shareholders, has been reported as being a possible partner for the deal, although it has declined to comment.

CS First Boston forestry analyst Andrew Mortimer said the lack of detail in Thursday's announcement made it difficult to calculate the deal's impact on Fletchers.

The identification of Fletchers' partner in the deal would be crucial: 'If it's a credible partner that could mean a revaluation of forestry values in New Zealand in general.

"As long as these guys know what they're on about, it could be positive for the whole sector."

Fletchers last month posted a $302 million after-tax loss for the half year to December 31, dragged down by the write-off of the balance of a $349 million loan relating to the failed partnership.

The company had assets of $1.67 billion and equity of $1.1 billion at balance date.

Persistent speculation that Fletchers had the inside running on the deal has helped the company's share price surge 18 per cent this year, well ahead of the market's overall 1 per cent increase.

Shares rose 1c to 26c in the half day of trading on Thursday's market.