Hart plans $1.55b forestry sale

Graeme Hart

Graeme Hart has put a for-sale sign over most of Carter Holt Harvey's near 290,000ha forest estate as a deal that could be worth more than $1.55 billion looms, say people familiar with the situation.

A contract, expected within 12 weeks, would be one of New Zealand's largest forest disposals, dwarfing sales in 2004 by the former Fletcher Challenge Forests and the Central North Island Forest's Partnership of 107,000ha and 165,000ha respectively and the near 100,000ha CHH sold last year.

Hart, who this year bought Carter Holt Harvey through his private company Rank for $3.32 billion after a hotly contested takeover battle, last night declined to comment.

Rank has sent out a flyer to potential buyers, expected to include a wide range of specialist forestry investors and private equity players.

The deal includes 250,000ha of land, 100,000ha of which is freehold. But Hart has elected to retain 36,000ha, worth as much as $252 million, CHH had already earmarked for sale.

The billionaire believes he can get more money by selling or leasing this land piecemeal to dairy farmers or property developers.

The $1.55 billion represents the asset's latest book value, which assumes it can be sold as a going concern.

At the time of Hart's takeover corporate adviser Grant Samuel valued the entire asset at $1.56 billion.

Credit Suisse First Boston and its local affiliate First NZ Capital are advising Hart.

The sale is Hart's latest in a series of rapid-fire deals that started in the the middle of last year that have seen him swap assets with Fonterra, float Australasian food group Goodman Fielder and liquidate his Australian vehicle Burns Philp's last remaining asset, Uncle Tobys, for $1.1 billion.

It is bound to spark speculation over his intentions for the rest of CHH assets, which include processing and distribution facilities throughout Australasia.

Top contenders for the forests include Hancock Timber Resource Group, PruTimber and GMO Renewable Resources. These are a few of the new breed of investors known as Timber Management Organisations.

These organisations have tax advantages not enjoyed by local investors and are more easily able to weather the ebbs and flows of commodity cycles because they invest for the long term.

They have featured in some of the biggest New Zealand forestry deals in the past six years, acting for clients such as Harvard University's endowment fund and the Ontario Teachers' Pension Plan.

Private equity players who have already shown an interest in similar assets include Deutsche Asset Management's DB Capital Partners and Australia's Macquarie Bank.

And despite Hart keeping the more valuable land, property investors may still join the ranks of the potential bidders.

The Kiwi Forest Group, a consortium of four property investors - Ross Green, Adrian Burr, Trevor Farmer and Mark Wyborn - set the standard when it acquired the Fletcher Challenge Forest Estate for $725 million.

They financed this deal by selling off the cutting rights to the trees and kept 71,000ha of land, 26,000ha of which has been leased to the state-owned Landcorp for dairy farms.

Much of the remainder can be converted into lifestyle blocks.

The forests up for sale represent the cream of the CHH estate.

The forestry giant elected not to sell the trees last year amid fears it would leave its mills in the North Island vulnerable to a squeeze on wood supply. This could occur if wood prices fell and the new forest owners reduced harvests until prices improved.

But Hart does not appear overly concerned about these fears and has instead elected to tie potential buyers into long-term wood supply contracts to the mills.

What's left

* Pulp and paper mills at Kawerau, Kinleith, Whakatane and Auckland.

* Sawmills throughout the upper North Island, Nelson and Australia.

* Packaging plants throughout Australia and the upper North Island.

* Panel and plywood mills in New Zealand, Australia and China.

* 36,000ha of high value forestry land.