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Hart bundles packaging assets, loads debt into Reynolds group

Wednesday 21st April 2010

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Reclusive kiwi billionaire Graeme Hart appears to be preparing his global packaging business, Reynolds Group Holdings, for sale, announcing plans for RGH to raise US$1.75 billion in new debt to acquire other parts of Hart's Rank Group empire.  

The debt-raising will allow Hart to bundle Carter Holt Harvey's specialty packaging paper mill at Whakatane into a wider transaction that will also tip US-based Evergreen Packaging into RGH, a company that the Rank Group acquired through subsidiaries in 2008.

The transactions all involve assets ultimately owned by Rank since December 2007, the same year as he acquired the Evergreen packaging group, which has operations in states of the US and in Saudi Arabia, Latin America, and China.

RGH global activities span the globe, although the company's latest annual report says its principal competitor, TetraPak has a "significantly higher" share of the global "aseptic" packaging market, used for packaging food, beverages and pharmaceuticals than RGH.

The report, prepared for the standards of US debt market reporting and running to nearly 400 pages, shows the RGH group to be marginally profitable in the last financial year and carrying an already heavy debt load.

In the year ended December 31, RGH reported net profit for the period of 11 million Euros, compared with a 128.1 million Euro loss the previous year, and losses in the previous two yearas on a consolidated basis.  The group is highly exposed to movements in a wide range of currencies, and in the world price for aluminium, cardboard and resins used in plastic-making.

While current "substantial indebtedness couldadversely affect ourability to fulfill our obligations", the risks section of the RGH report also notes that "despite our substantial indebtedness we may be able to incur or issue substantial additional debt in the future".

The report discloses current outstanding bonds and non-current indebtedness of 3.1 billion euros, but suggests improving financial metrics, with total debt as a proportion of earnings before interest, tax, debt, and amortisation has reduced from a multiple of 5.1 times at the June 30 to 4.3 times by year-end, December 31.

A management presentation accompanying the annual report shows RGH has been hit by a return to store-branded goods rather than specialty brands, thanks to the global financial crisis, and that it has been consolidating operations, reducing headcount and rationalising its product lines across several of its businesses in the last year.

The Whakatane mill is CHH's only coated cartonboards mill operating in New Zealand, with the remainder producing linerboard, pulp and paper products.

The transactions are expected to be completed next month, according to a statement from RGH.  In keeping with its standard practice, no part of the Hart empire is commenting further.

However, market speculation is that Hart is bundling assets and debt into RGH to prepare them for sale, in line with Hart's previous history of aggregating businesses of regional or global scale and organising them for on-sale.

The RGH report identifies the potential for competitors to consolidate their operations as a business risk, and a trend of the last decade that it expects to continue.

Last October, Rank announced a US$3 billion rejig to the ownership of Closures Systems International and Reynolds Consumer Products, both of which comprise elements of RHG and which make plastic caps and closures and foil, wraps and bags. 

In a statement to the Irish stock exchange, Luxembourg-based Beverage Packaging Holdings (Luxembourg) II, a subsidiary of Rank, disclosed that another Rank entity, Beverage Packaging Holdings (Luxembourg) III, would acquire the two businesses. Rank owns RGH through BPI and BPII. 

Businesswire.co.nz



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