Fletcher wipes millions off North Island forests

By Phil Boeyen, ShareChat Business News Editor

Thursday 25th January 2001

Fletcher Forests (NZSE: FFS) has written off all its equity in the Central North Island Forestry Partnership and set aside $5 million to cover any legal fight with Chinese-owned Citic.

The writedown has been expected as the value of the North Island forests have fallen in line with world log prices.

As partners in the venture both Fletcher Forests and Citic share equal ownership of around 190,000 hectares of central North Island forests, which were bought from the government in 1996 for NZ$2.2 billion.

Brierley Investments was another original partner with a 25% stake but sold out to FFS and Citic in 1998 at a loss of $140 million.

Fletcher Forests says the carrying value of its interest in the partnership has fallen from US$478 million to US$225 million as at 31 December 2000. The writedown will result in a charge to earnings in the six months to the end of last year of US$233 million after tax.

The new carrying value assesses the realisable value of the the entire partnership at US$865 million.

All the company's equity in the partnership has been written off, together with a US$47 million portion of its subordinated loan to the partnership.

Forests CEO Terry McFadgen says the loss of value is very disappointing but log prices have not recovered significantly since the 1997 Asian crisis.

He says in US dollar terms they are 30-40 per cent below those prevailing when the partnership bought the forest.

"As a result, both the partnership's financial performance and the value of this asset have been severely affected."

However Mr McFadgen says the changes reflect the partnership's financial performance and are not related to the legal disputes between it and partner Citic New Zealand.

"We have fully reviewed Citic's claims and confirm they lack real substance. They will be vigorously defended."

Citic has accused Fletcher Challenge of selling logs cheaply to its own companies when it could have received a higher market price.

Mr McFadgen says FFS has established a provision of $5 million to cover the costs of a full legal defence.

He says the loss incurred in relation to the CNIFP has no current impact on the company's other activities.

"We have a strong business of our own outside the partnership, based on our own forest estates and well established processing and marketing infrastructure."

Mr McFadgen says the partnership's debt facilities are separate and the changes have no cash impact on Fletcher Forests, nor will they have any effect on the Group's restructuring plans.

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