Fletcher Challenge Forests Writes Down Value
OF HOLDING IN CENTRAL NORTH ISLAND FOREST PARTNERSHIP
AUCKLAND, 25 January 2001 – Fletcher Challenge Forests today announced that it had written down the carrying value of
its interest in the Central North Island Forest Partnership (CNIFP) from US$478 million to US$225 million as at 31
December 2000. The reduction in carrying value will result in a charge to earnings in the six months to 31 December 2000
of US$233 million after tax (NZ$529 million at 0.4405).
The new carrying value assesses the realisable value of the partnership estate (100%) at US$865 million, or US$225
million net of senior bank debt of US$640 million. As a result, all the company's equity in the Partnership has been
written off (US$206 million at 31 December 2000), together with a portion (US$47 million) of the company's subordinated
loan to the Partnership. Fletcher Challenge Forests’ investment in the Partnership is now represented exclusively by
subordinated debt principal and net accrued interest totalling US$225 million. This investment is secured over the
assets of the Partnership, ranking behind the senior bank debt.
The company also announced that, as from 31 December 2000, it would cease to recognise as income interest accruing on
its subordinated debt, and it noted that equity accounting would also cease at that date.
The Chief Executive of Fletcher Challenge Forests, Terry McFadgen, said today: "These impacts on our accounts reflect
the economic status of the Partnership. The loss of value is very disappointing but log prices have not recovered
significantly since the 1997 Asian crisis, and in US dollar terms, are 30-40 per cent below those prevailing when the
Partnership acquired the forest from the New Zealand Government in 1996. As a result, both the Partnership's financial
performance and the value of this asset have been severely affected."
He added "These changes reflect the Partnership's financial performance and are not related to the legal disputes
between us and our partner, CITIC New Zealand Limited. We have fully reviewed CITIC's claims and confirm they lack real
substance. They will be vigorously defended." The company advised that it had established a provision of NZ$5 million to
cover the costs of a full legal defence.
Mr McFadgen also noted that the loss incurred in relation to the Partnership had no current impact on Fletcher Challenge
Forests 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”, he said. “The Partnership's debt facilities are separate
and there is no recourse to Fletcher Challenge Forests." He emphasised that the changes had no cash impact on Fletcher
Challenge Forests.
Fletcher Challenge Limited confirmed that the write-down would have no effect on the Fletcher Challenge Group
restructuring. "We have put in place a capital structure for Fletcher Challenge Forests as a stand-alone entity which is
robust and not dependent on any particular outcome in relation to the Partnership," said Fletcher Challenge CEO, Michael
Andrews. The company confirmed that documentation for the shareholder meetings to approve the separation process is
expected to be despatched to shareholders in mid February 2001.
A separate release is available on other unusual items which will be included in the Information Memoranda being sent to
shareholders in mid-February.
Ends