Forestry scrap hits shares

By GEOFF SENESCALL

Tensions between Fletcher Forests and its Chinese joint venture partner escalated yesterday, with Citic again beating the drum for court action.

In a terse statement, which saw trading in Fletcher Forests shares halted briefly, Citic said court action over the Central North Island Forestry Partnership was now inevitable.

In response, the Fletcher Forests' price slumped to an all-time closing low of 35c, a drop of 3c on the day.

Sentiment towards Forests was already running low after its parent, Fletcher Challenge, unleashed a huge $427 million rights issue on shareholders, claiming it could not find a buyer willing to pay a fair price for the asset.

Rubbing salt into Fletcher's wound, Citic revealed that attempts to buy Forests out of the partnership, which controls the largest forestry plantation in this country, had been ignored.

Citic's New Zealand managing director, Cui Peisheng, said Fletcher had rejected four proposals in as many months.

Fletcher Challenge spokeswoman Ginny Radford responded by saying the company normally did its negotiating in private.

"Basically there are a lot of things in there [the statement] that simply aren't accurate so we are not going to respond any further to it," she said.

As to the halt in share trading, Ginny Radford said: "I hope that most of the reasons we stop trading have a little more substance to them."

Fletcher Forests and Citic have been arguing about how the partnership should manage its timber harvest since the 1997 Asian economic collapse, which crippled log exports from New Zealand.

But the dispute blew up late last year when Citic took its concerns about Fletcher's management of the contract to court.

Citic claims it has been losing up to $30 million a year because Fletcher was selling too many logs to itself when it could gain better returns in other domestic and export markets.

Both parties are in the process of discovery. A High Court hearing date has yet to be set.

This legal battle was seen as an impediment to Fletcher's finding a buyer for Forests. Citic also had the added leverage of pre-emptive rights over the Central North Island Partnership.

A spokesman for Citic, Greg Malloy, hit out at suggestions that its actions had been precipitate.

"The implication was that Citic is a difficult partner and a thorn in the side of the whole process ... From our point of view we were the group making the proposals to resolve the issue."

Both Fletcher and Citic have watched the value of their asset - bought from the Government in 1996 for $2.2 billion (including $1.5 billion of debt) - diminish.

While the value has been marked up to just under $3 billion in Fletcher's accounts, some analysts believe that if the asset was sold the proceeds might not even cover the associated debt of about $1.9 billion.

Both Fletcher and Citic will have to put more capital into the partnership by the end of the year.