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Enza's forex losses row cripples apple industry

Friday 6th July 2001

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By Chris Hutching

Enza's $50 million foreign exchange crisis has caused a hiatus in the $700 million export industry, with many growers on the financial brink and delaying winter orchard management until a solution is worked out.

At the same time it is doubtful Enza has the capacity to absorb the losses and its main shareholders, F R Partners and GPG, would be unwilling to recapitalise the company under such circumstances.

The imperative to find a solution is growing, ahead of pending deregulation of Enza's export monopoly in October.

Pipfruit Growers NZ (PGNZ) has commissioned Crengle Shreves & Ratner and Robert Dobson QC to investigate the legalities of the issue and spokesman Phil Alison said Enza had the right to claw back just $8 million or 67c a carton - not the $4.50 a carton proposed.

Industry sources warned of the imminent financial collapse of 30% of Enza's suppliers if the full amount was clawed back and said banks were becoming increasingly nervous.

Mr Alison said, contrary to popular misconception, there was no "grower account" of expenses for which growers were responsible. Costs, including foreign exchange losses, were Enza's responsibility and it could only claim back money to the extent that the 2001 supply contract allows.

Mr Alison said an injunction was inappropriate because the supply contract provided for a disputes procedure.

PGNZ is continuing to meet and talk with Enza to work out which currency transaction should lie with growers under the current contracts. PGNZ's foreign exchange adviser is expected to report back early next week.

Tony Gibbs, the chairman of the recently privatised single- desk apple marketer, has led with his chin on the issue with his cheeky proposal growers should cover Enza's losses. It appears Mr Gibbs hopes his secondary proposal to levy growers over five years will be more palatable.

Imposing the levy on all growers would require government legislation and there are many classes of growers, including independent exporters, who would be caught unfairlys. It is unclear whether a levy should capture all growers or just Enza suppliers.

Loading all the costs on growers conveniently ignores their ownership of only 60% of Enza's shareholding. The balance is held by FR Partners and GPG, who would or should have been well aware of the kind of liabilities they might face when they bought into the company last year.

Industry sources continue to argue about whether the previous Enza board is responsible for the blowout or whether the new board under Mr Gibbs has played a part.

The crisis has given opposition Tasman MP Nick Smith considerable political traction as Agriculture Minister Jim Sutton exhorts various parties to work out the issues through arbitration before resorting to legal or legislative solutions. Mr Sutton has sought legal advice from the Crown Law Office and is expecting that within the next week.

Mr Smith yesterday called on Enza to release a valuation report carried out last August but in fact the report has been available for some time to growers who are members of Enza's website.

It reveals a valuation of between $100-120 million but qualifies this with various reasons such as limited share liquidity for discounting the value about 50%.

FR Partners and GPG paid about $6 million each for the holding.

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