Receivers Appointed To Forest Partnership

Receivers Appointed To Central North Island Forest Partnership

AUCKLAND, 26 February 2001 – Fletcher Challenge today confirmed that the banks financing the Central North Island Forest Partnership (the Partnership) had appointed Mr Michael Stiassny and Mr Grant Graham of Ferrier Hodgson as Receivers for the assets. Fletcher Challenge Forests will continue as interim manager of the Partnership business, under the Receivers' direction.

The Chief Executive of Fletcher Challenge Forests, Terry McFadgen said that the decision had been expected for some time and will not come as any surprise to the financial markets. It reflected the impact of current low log prices on the financial performance of the Partnership.

He noted that the receivership related only to the Partnership and does not affect Fletcher Challenge Forests' core activities including sawmills producing 580,000 cubic metres of lumber, remanufacturing and plywood plants with outputs of almost 100,000 cubic metres of engineered wood products, mouldings, and plywood, or Fletcher Challenge Forests’ own forest estate, including Tarawera (82% owned), totalling some 120,000 hectares.

He also noted that the decision brought a level of certainty regarding the Partnership which was a step forward from the difficulties of the past months. "The Partnership issues have been a major distraction overshadowing the ongoing work and operational improvements being achieved within our own estate, as well as those other forests managed by Fletcher Challenge Forests, and this step enables us to move forward with clarity," he said.

“Following the successful recapitalisation achieved late last year, Fletcher Challenge Forests is now focussed on securing the operational improvements and reductions in overhead costs which we have targeted,” said Mr. McFadgen. “Our market strategies are already delivering the higher value achievable from processed products, and our reliance on commodity log markets has been substantially reduced. We need to accelerate our move down the added value path, and we have the resources to achieve this," he added.

The Partnership, of which Fletcher Challenge Forests and CITIC New Zealand Limited each own 50 per cent, has faced financial pressures for some time as a result of low international log prices. Recently Fletcher Challenge Forests wrote down the accounting carrying value of its holding in the Partnership to US$225 million. All Fletcher Challenge Forests' equity in the Partnership has been written off, and the remaining value is represented exclusively by subordinated debt principal and net accrued interest of US$225 million (NZ$500 million), which is the assumed recovery on a sale of the Partnership’s assets for US$865 million. The investment is secured over the assets of the Partnership, ranking behind approximately US$640 million of senior bank debt.

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