Receivership a 'step forward' says Forests

By Phil Boeyen, ShareChat Business News Editor

Tuesday 27th February 2001

Fletcher Forests (NZSE: FFS) is looking positively on the receivership of the Central North Island Forest Partnership, claiming it's a 'step forward' from the difficulties of past months.

The Partnership has been under threat of receivership since early this year when it failed to reach financial targets related to what it earns and the amount it pays in interest on its loans. It has US$640 million in senior bank debt.

Fletcher Challenge yesterday confirmed that the banks financing the Partnership have appointed receivers for the assets.

FFS boss, Terry McFadgen, says the decision brings a level of certainty.

"The partnership issues have been a major distraction overshadowing the ongoing work and operational improvements being achieved within our own estate, as well as those other forests managed by Fletcher Challenge Forests, and this step enables us to move forward with clarity."

Mr McFadgen says the partnership, of which Fletcher Challenge Forests and Citic New Zealand each own 50%, has faced financial pressures for some time as a result of low international log prices.

Recently Fletcher Challenge Forests wrote down the accounting carrying value of its holding in the partnership to US$225 million, represented by subordinated debt principal and net accrued interest.

It says the US$225 million figure is the assumed recovery on a sale of the Partnership's assets for US$865 million, after taking into account the bank debt of US$640 million.

Meanwhile Citic says it regrets that the partnership has gone into receivership and although it could have injected new capital into the venture it was not prepared to do so unless it made progress on its dispute with Fletcher.

Citic says the dispute has revolved around management of the Partnership, over-cutting of the forest, the favoured status given to Fletcher Forests' mills in relation to purchasing logs, and the value of tax benefits.

The head of Citic New Zealand, Cui Peisheng, says the company plans to continue with legal claims against Fletcher Forests.

"Citic believes that we have a strong case and we are confident of significant damages being awarded," he says

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