Receivers likely to end Citic saga

By PAULA OLIVER forestry writer

Receivers are likely to be appointed to the turbulent Central North Island Forestry Partnership, opening the door for Fletcher Forests to bring in a new partner to jointly take over the country's largest forestry asset.

The partnership between Fletcher Forests and Chinese Government-owned Citic breached its banking covenants last December, meaning its banking syndicate - owed $US650 million ($1485 million) - could step in and put the assets up for sale.

The 12-bank syndicate, led by the BNZ, has not yet given an indication of what action it might take.

The partners' acrimonious relationship, which has seen Citic take court action against Forests, is no closer to being resolved. A combined capital injection looks unlikely.

Fletcher Challenge chairman Roderick Deane and chief executive Michael Andrews yesterday said the most likely outcome for the partnership was for receivers to be appointed.

Once that had been done, the banks would probably look for maximum value from a sale of the assets, and Fletcher Forests would be keen to maintain some kind of interest, Dr Deane said.

"If they [the banks] were to offer the partnership's assets for sale, there's likely to be a number of parties who would be interested."

"Some of those parties may well have an interest in some sort of association in that process with Fletcher Forests."

Fletcher Forests holds the box seat should the partnership be put into receivership, because it holds $US225 million in secondary debt.

It is likely to get all or some of that back should the assets be sold, whereas Citic holds only equity - which some analysts argue is now worth very little after the partnership's value fell with log prices.

Fletcher Forests wrote off its equity in the partnership last month.

One analyst spoken to by the Business Herald said receivership would be the best result for Fletcher Forests, which would be pushing a proposal to bring in a new partner.

"If that partner came in with say, $500 million, and Fletcher converts its sub-debt into equity, you've got a new partnership that's 50/50, and the banks are happy," the analyst said. "That new party reduces the bank debt, and you've got a strong partnership."

US-based forestry giant Weyerhaeuser is one possible partner, the analyst said. Another is Plum Creek, the United States' fourth-largest private timberland owner, which harvests logs to domestic and export markets, and operates nine manufacturing facilities.

"It's not every day in the world that you get access to a plantation forest like this which does not have any environmental problems," the analyst said. "It's an attractive asset."

But while Fletcher Forests may be seeking a new partner, Citic should not be forgotten.

It would be left out in the cold if Fletcher's new partner scenario emerged - which would be an unsatisfactory outcome for Citic.

Many of the international log resources China is accessing are unsustainable, and the central North Island asset is crucial to future supplies, an analyst said.

That would likely see Citic bid for the assets should they be sold.

"There could be counter-proposals going back and forth between the banks and the partners now," an analyst said.

"It's gone very quiet - which usually means they are deep in negotiation."

A complicating factor for the international banking syndicate members is the desire not to upset Chinese Government-owned Citic - which is a major customer around the world.

But any decision would be made on a majority basis.

Dr Deane would not speculate on when the banks might reveal their next move, but did say that it was a fast, if not the desired way of resolving the partnership's problems.

Banking sources said that Fletcher's new partnership could be up and running towards the end of March.