Harvard fund buys forests, but price a secret

By PAUL PANCKHURST

Thirty-one months after toppling into receivership, the Central North Island Forestry Partnership has sold its 162,000ha forestry estate to Harvard University's endowment fund.

The estate had been on the market for US$650 million ($1 billion) - the money owed to a syndicate of 12 banks - but the sale price was not disclosed.

Banking sources had speculated the estate's value was US$500 million ($820 million).

The market speculation yesterday was that the banks had taken a haircut - selling in a depressed global timber market - but not of that size.

The big twist is that Harvard is also believed to be behind The Campbell Group, the United States timber management company company that last month signed a letter of intent to buy Fletcher Challenge Forests' sprawling estate for $685 million.

That bid was later topped by a local and overseas consortium called Kiwi Forests Group, but Harvard and Campbell could return with a higher bid.

That raises the question of whether Harvard wanted either the CNIFP estate or the Fletcher trees - or whether it wanted both to fold into a super-estate.

There is already a New Zealand connection with the Harvard fund.

The Rotorua office of GMO Renewable Resources - a seven-year-old company that is part of the Boston-based global investment firm Grantham, Mayo Van Otterloo - is advising Harvard on CNIFP.

A New Zealander, Andy Wiltshire, who is a former partner in GMO, is in charge of Harvard's timber investments.

Receiver Michael Stiassny's efforts to sell the estate after the partnership of Fletcher and China's Citic went into receivership on February 26, 2001, had more twists than a Chubby Checker danceathon.

"I don't think anyone thought it would take this long," said Stiassny. "It was unfortunate that a number of parties got close but were never able to get over the line."

The Overseas Investment Commission has approved the deal, due diligence is complete, and settlement is expected before year's end. Ian Jolly, of GMO, would comment on neither the remaining conditions on the deal nor where Harvard stood in relation to the Fletcher estate.

"Debt-free," was his key message - the purchase would be fully equity-funded and the estate would not be managed according to short-term cashflow requirements.

One translation: Harvard can afford to be smarter about when it cuts down trees, holding back for the best returns.

Harvard takes 100 per cent of Timber Management Company, the business set up by Stiassny to run the estate instead of Fletcher Forests and half of log export company Silva.

The underlying land is not part of the deal and remains Crown owned.

FOREST HISTORY

The 165,000ha forest was planted by the Government between 1908 and 1937. It was sold in 1996 to a consortium comprising the investment arm of the Chinese Government (Citic), Fletcher Forests and Brierley Investments.

1998: Fletcher and Citic bought out the Brierley stake, creating the Central North Island Forestry Partnership (CNIFP).

February 2001: the CNIFP was put into receivership by its bankers after slumping log prices hit returns.

June 2002: Fletcher Challenge Forests and Citic agreed to buy back the forest for $1.2 billion from the receiver, Michael Stiassny.

August 13: 2002, Fletcher Challenge Forests' shareholders, led by Guinness Peat Group, voted against the deal.

October 2003: Receiver sells forest to Harvard University fund manager Harvard Management Company.