Fletcher Forests confident more jobs will come from deal

By NZPA

Tuesday 18th June 2002

The cloud of uncertainty that has hung over the giant central North Island forests finally appears to have lifted, with a $1.35 billion deal struck over their future.

Eighteen months after their partnership collapsed amid acrimony and plummeting log prices, partners Fletcher Challenge Forests and Chinese company Citic yesterday agreed to renew their marriage vows and rescue the forests from receivership.

The conditional agreement to repurchase the Central North Island Forestry Partnership from receivers Ferrier Hodgson for $US650 million ($NZ1.35 billion) has secured the future of hundreds of workers in the central North Island.

However, it is likely to mean around 100 administrative staff will lose their jobs, mostly in Auckland.

Under the new deal, Citic is taking a 35 percent stake in Fletcher Forests, which will be capped for two years.

The two companies have agreed to work together under a new structure which will see the Chinese company take more of a back seat role.

All the forests previously owned by the two companies will be merged with Fletcher Forests' existing assets, meaning Fletchers will resume control of more than 250,000 hectares of forests in the central North Island.

The deal will also see the Waipa sawmill, Waipa remanufacturing plant and Mt Maunganui wood processing plant run under the same management as Fletchers' other assets such as the Kawerau, Rainbow Mountain and Taupo sawmills.

The only forest to be excluded from the deal is the 11,800 hectare Tahorakuri forest near Lake Taupo, which will be sold to Fletcher offshoot Rubicon for $US64 million ($NZ134 million).

For Forests, the exchange of Tahorakuri helps it preserve cash which was vital given that its target debt ratios will "temporarily" be blown out by the CNI purchase. Harvesting of Tahorakuri is not due to begin for three years and so it is not producing any cash.

While the deal, described yesterday by Fletcher Forests chairman Sir Dryden Spring as "comprehensive and bold", has yet to be approved by shareholders, both companies are hoping it will be finalised by late September. Sir Dryden said the deal had the full support of Forests' independent directors although Stephen Hurley, president of United States forestry investor Xylem Corp, resigned, saying he was not satisfied the deal was fair and reasonable for minorities. Xylem is Forests' second biggest shareholder with 7.6 percent.

Mr Hurley was unavailable to comment.

Fletcher Forests' chief executive Terry McFadgen said yesterday he was optimistic more jobs would eventually be created in wood processing, which was "a big win" for the central North Island.

He also stressed the company was looking to reinvest "tens of millions" of dollars upgrading its processing facilities. Mr McFadgen said the company intended to spend the next six to 12 months examining its options for the Waipa, Rainbow Mountain and Kawerau mills.

Staff have so far received only a written briefing about the deal. Follow-ups are planned over the next few days.

Citic director Charlie Tan yesterday described New Zealand's plantation forests as the best in the world.

He also stressed how important they would be in feeding a near-insatiable demand for wood in China, which is facing an annual wood deficit of 60 million cubic metres by 2010.

Even after the "wall of wood" comes on stream in five years' time, New Zealand is expected to produce only 10 to 12 million cubic metres.

Fletcher has signalled it intends to take full advantage of this demand to step up harvesting and help pay off its significant debts.

But while Sir Dryden has stressed the company will continue to focus on a mix of log and processed product markets right around the Pacific rim, not everyone is convinced extra jobs will be created in the central North Island.

Professional Maori land trustee Jim Gray from Rotorua believes Citic will try to ensure those jobs go to China.

"You can walk into a furniture shop in Rotorua and you can buy something made from Russian pine that is processed in Vietnam rather than from here. Why? Because it's cheaper," Mr Gray told The Daily Post.

" What you do with the log is where the bucks are and that's where you're going to maximise your return. I certainly wouldn't be holding my breath in terms of large amounts of processing jobs opening up for us."

Asked if New Zealand timber should be processed in New Zealand or in China, Mr Tian said it would be both, with his aim to maximise value for all Fletcher Forests' shareholders.

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