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FCF woos Citic and Rubicon for CNIFP deal

By Felicity Anderson, Business News Editor

Monday 20th May 2002

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Fletcher Challenge Forests (NZSE: FFS) says it has reached an understanding with its former Central North Island Forest Partnership (CNIFP) partner, Citic, on an attempt to buy back the forest estate.

Sir Dryden Spring, Chairman of Fletcher Challenge Forest (FCF), says the duo are looking at injecting new equity of around $US200 million ($NZ431 million) at an issue price of NZ37cents a share.

If it goes ahead the deal would result in Citic becoming the cornerstone shareholder with 35%.

FCF says it is also courting its offshoot, Rubicon (NZSE: RBC), to buy most of the 17.6% shareholding in the CNIFP it inherited as part of the split up of the former Fletcher Challenge.

Rubicon confirmed on Monday it was talking with FCF and the substance of the proposed deal was that in return it would take a shareholding interest in FCF's forest estates.

Both the Citic and Rubicon proposals will only proceed if the current conditional agreement between Vela Forestry and the receivers of the CNIFP falls over and FCF can negotiate a purchase transaction with the receiver.

Rubicon shareholders and regulatory watchdogs would also have to be happy.

FCF's shares lifted imnmediately after the announcement. The ordinaries lifted 5 cents to 25cps and a volume of 5.42 million was quickly traded. The preference shares lifted 4 cents to 24cps on trading of 3.52 million shares.

FCF surprised the markets late in April when it pulled out of a conditional contract to buy the estimated $1.5 billion CNIFP assets.

Terry McFadgen, FCF's Chief Executive, said then there had not been enough time to meet the deadline imposed by the receiver and FCF had been slowed down by some organisation changes. These organisation changes occurred within Fletcher's as-yet-unnamed partner in the deal

Back when it announced it had a conditional deal to buy the assets it once shared with Chinese-government owned Citic, FCF said those conditions included finance and the approval of its shareholders.

Analysts said the contract was always subject to Fletcher finding sufficient funding and to getting that relied on capital from third parties. Fletcher potentially still had an opportunity to be involved through equity or management level, or if the back up contract fell over, to continue to manage the forest for the receiver.

New Zealand entrepreneurial brothers Philip and Peter Vela, who had secured a back-up conditional contract earlier in April, professed surprise at the speed of FCF's withdrawal.

Clive Bradbury, a spokesman for the Velas and Vela CNI Forests, said then that the brothers thought it would be June or July before their backup agreement came into play. Bradbury said they would be interested to hear why Fletcher walked away from the deal without even trying to begotiate a contract extension with the receiver.

Vela CNI Forests is currently doing due diligence on the CNIFP assets and one or both of the brothers are expected to return from an extended overseas visit before deciding to proceed.

The bid represents the Vela's first move into the forest industry with their primary investments being held in fishing and blood stock.

The CNIFP was put in receivership after FCF and its Chinese government-backed partner, Citic, failed to meet bank demands over debt.

The partnership's high debt gearing was put in jeopardy when log prices fell to cyclic lows.

When the receivers were appointed by a syndicate of banks they were seeking to recover more than $637 million. The 188,000 hectare forest estate was put up for sale last year and attracted global interest.

Analysts say with log prices going up around the world the value of the forest will be increasing in US dollar terms, but after hikes in the cost of transport and the appreciation of the NZ dollar, not in NZ dollar terms.

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