Foreign partner can't wait to be shot of FCL

By Nicholas Bryant in Buenos Aires

Friday 16th June 2000

RIPE FOR PICKING: Argentine eucalyptus in Fletcher Challenge's joint-venture forest.

The relationship between debt-burdened Fletcher Challenge Forests and the partner in its poorly-performing Argentinian joint venture has deteriorated after FCL failed to stump up with its expected injection of capital.

The North Argentinian-based joint venture Forestada Tapebicuá said the sooner Fletcher Challenge Forests is sold, as the Fletcher conglomerate is split up, the better.

Forestada Tapebicuá president Fernando Albano said he regretted that sentiment as he had enjoyed his relationship with FCL but it was essential for the success of the operation.

"When FCL came in [1995] they brought deep pockets but since the Asian crisis the deep pockets have ended.

"We don't expect to have problems with a new shareholder, and I don't like to say it, but maybe it's better for us ... there has been a lowering of the scale of Fletcher Forests' contributions in recent years and our wishes to grow aggressively have been curbed by that," Mr Albano said.

Five years ago when FCL spent $US22.5 million buying 50% of Tapebicuá it had big visions for production and sales in the fast-growing region.

It had a good start; its partner, with 2200ha of eucalyptus, was a frontrunner in an industry with few established players.

The new Tapebicuá set about building markets and educating those markets to expect high quality, a task done by translating cloning technology learned in the local radiata pine industry to eucalyptus.

Close to $US10 million was spent on kiln dryers and a ply- wood plant, moves designed to change a culture used to green- finished product and to add value to those products.

But despite that significant investment others have surged ahead. One reason is no new forests have been planted by Tapebicuá since Fletcher's arrival.

"Ideally we would probably have looked to plant or acquire more of the right sort of forests, but I think lack of capital has constrained us ... and now the uncertainty related to Fletcher Challenge is not helping that situation," Fletcher Forests communications director Ginny Radford said.

It was likely Fletcher Forests or its new owners would exit the Argentinian investment.

"Because we have this 50/50 joint venture, we believe we have an asset. Ideally we would like to develop it further but if we cannot then we believe it is a saleable asset," Ms Radford said.

Tapebicuá's Mr Albano said forestry companies including major players Weyerhaeuser, UBS and Hancock Timber from the US were all interested in Fletcher Forests. "We haven't done any due diligence with these big companies, but most of them know us. They've been here before," he said.

But industry sources said Fletcher Forests would not be easy to sell. A straight sale was possible but shedding assets, such as Tapebicuá, and a recapitalisation were also possibilities, Deutsche Bank analyst David Stanley said.

The company's $1.7 billion debt, much of it related to its Central North Island Forestry partnership, was also adding to complexities, he said.

"The timing of decisions on all three remaining businesses is likely to be similar [probably August/September] given it's unlikely Fletcher Energy or Fletcher Building can happen before Fletcher Forests, so if you finalise Fletcher Forests you can progress the other two," Mr Stanley said.

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