Proposed arrangements for Capital Notes

Proposed arrangements for Capital Notes

AUCKLAND, January 18 2001 – Fletcher Challenge Limited and Fletcher Challenge Industries Limited today announced summary details of the proposed arrangement for holders of its Capital Notes arising out of the proposed separation transactions of the Fletcher Challenge Group.

The arrangement, which is subject to Fletcher Challenge shareholders approving the separation transactions, involves:

 Fletcher Building Limited (a stand alone publicly listed company which will be the holding company for the separated Fletcher Challenge Building Division) taking over the obligations of Fletcher Challenge and Fletcher Challenge Industries in respect of 35 per cent of each series of Capital Notes (other than the March 2001 Capital Notes). The coupon interest rate for each series of these Capital Notes will be increased by 0.50 per cent; and

 Fletcher Challenge Industries redeeming the balance of the Capital Notes for cash at a margin of 1.50 per cent over the relevant Government Stock yield rate, on a day in the week commencing 22 January to be determined by Fletcher Challenge, such that all holders will receive a sum greater than their principal invested.

In addition, Fletcher Building will offer a new series of 2006 Capital Notes to holders of March 2001 Capital Noteholders.

In essence this means that, if the arrangement is approved, Capital Noteholders (excluding March 2001 Capital Noteholders) will have 65% of their existing investment redeemed for cash at a margin of 1.5% over the relevant Govt Stock yield rate. The remaining 35% of Capital Noteholders’ investment in Capital Notes will be novated to Fletcher Building and the interest coupon for each series of these Capital Notes will be increased by 0.50%.

Please Note: If you do not receive 2 page(s) including this page, or if any page is not readable, please call the sender immediately on telephone 64-9-525 9000. Further information on Fletcher Challenge Limited can be viewed at the Fletcher Challenge World Wide Web site, at http://www.fcl.co.nz

Holders of March 2001 Fletcher Challenge Capital Notes will have the opportunity to re-invest at least 35% of their redemption cash in new 2006 Fletcher Building Limited Capital Notes. The interest coupon on these new notes will be announced in early February. Interest will accrue on these notes from 15th March 2001. Should this issue not be fully subscribed by the holders of March 2001 Capital Notes, Fletcher Building may consider making an offer of 2006 Capital Notes to all other Capital Noteholders and the public.

Holders of each series of Fletcher Challenge Industries Capital Notes (other than holders of March 2001 Capital Notes which will be redeemed for cash on 15 March 2001 in accordance with their terms) will be asked to approve the arrangement at meetings of Noteholders to be held on 19 February 2001 after which it will be submitted to the High Court for approval.

No vote is required for the issue of Fletcher Building 2006 Capital Notes.

If the holders of any series of Capital Notes do not vote in favour of this arrangement, those Capital Notes will continue as unsecured subordinated obligations of Fletcher Challenge Industries which will be part of the Fletcher Challenge Forests Group following separation.

The Separation Transactions of the Fletcher Challenge Group are not dependent upon the approval of the Capital Noteholders.

An Information Memorandum incorporating an Investment Statement and Prospectus for the Capital Notes to be issued by Fletcher Building Limited providing full details of the above will be forwarded to all Capital Noteholders in early February 2001.

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