Forum Archive Index - November 2000

[Gerry Tyler-Smith <g.tylersmith@ext.canterbury.ac.nz>]

With all the bad news associated with FFS, plus the NZ market being very
flat due to so much $ being taken up with recent Telstra and Air NZ rights
and Westpac installment due in a fortnight,  plus foreign investors pulling
out of NZ and being equally uncertain about the US market, plus pundits
like Ed Kerchner, Joseph Battipaglia and  Abby Joseph Cohen pronouncing
that investors should avoid forest shares, as well as the recent experience
of shares going even lower after their rights issue, I can't see how FFS
won't go a lot lower than it is now ...it looks to me like the underwriters
are keeping the FFS share price above that 25 cents level (tho it was
trading at 24 cents on the NYSE this morning  >. Even Ord Minnet, who are
still recommending shareholders taking up the rights, still only value FFS
at 43 cents ex-rights, which means that idiots like me, who paid an average
of 73 cents per share, won't even recover that value, even when the share
price does recover, which could take several years, with the current
oversupply of logs and concommitant low price in the world, and Citic's
determination to spoil any sale of FFS (because they appear to want to buy
it cheap, themselves).  I keep thinking  of the opportunity costs of taking
of my FFS rights, of tieing up thousands of dollars, for several years,
adding the loss of compounded interest of at least five per cent, which
could be earned just by putting it in the bank, with no risk,   just to try
to diminish that first loss in my already overlarge exposure to FFS ...  I
think it was Baron Rothchild who said 'Be quick to take a loss, and slow to
take a profit." (Meaning: sell those suckers as soon as they drop fifteen
per cent, and run those winners until they also drop fifteen to twenty per
cent from their highs).

My strategy, at the moment, is to sell my rights next week (even if only to
give my broker that commission), gamble that FFS will go considerably lower
than 25 cents post-rights (ANB AMRO is predicting as low as ten cents)  and
to buy in then, to try to overcome the dilutionary effect of the rights
issue on my holding.  If I am wrong, and FFS do go up in market value, then
at least my original loss won't be so great, and I still have the money i
would have tied up in the rights issue, to invest in other companies which
are presently very attractively priced and  show much, much  less obvious
risk than Fletcher Forests (like THL, or PDL or Nuplex, or FAP, or
Warehouse, or even Advantage). The value of the preference shares in any
possible liquidation of FFS doesn't seem that important, since it is highly
unlikely that FFS would go into liquidation (remember that the bank default
for the CNIFP is only for that, not the entire company of FFS.)   And in
fact, a default would get rid of Citic, which in the short turn, would
really frighten the horses, but in the long term, would be great, because
it would get FFS out of the partnership, with at least some of the money
Citic owes them, repaid to FFS (this is Arthur Lim's (of Ord Minnet)
analaysis).

But what do I know? If I was so smart, I wouldn't have bought FFS in the
first place.



With the rights now at 0.2 cents - not even worth selling - brokerage would
>absorb that.
>
>The question now for unfortunates like me is what to do ?  The only
>advantage with taking up the rights as opposed to buying shares at the same
>price is the brokerage.
>
>With the unknown outcome of the CRITIC and  Bank Loan factors the
>over-riding question is whether it is prudent to get deeper into this sorry
>mess. Obviously funds from the share issue will have to be used to help
>sort out the loan question, the unknown is how much and where that will
>leave the future prospects of the Company.
>
>  There is underlying strength and 25cents could be cheap,  if the above
>factors are sorted out - only time will tell.
>
>Comments please.
>
>BG
>
>
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