15/01/2010 - 00:00

Tough conditions result in 11th-hour deals

15/01/2010 - 00:00

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WHEN Tasmanian forestry products heavyweight Gunns missed out on securing the assets of defunct agribusiness company Timbercorp, those vying for assets of another failed timber company knew they were in trouble.

Distressed assets

WHEN Tasmanian forestry products heavyweight Gunns missed out on securing the assets of defunct agribusiness company Timbercorp, those vying for assets of another failed timber company knew they were in trouble.

Gunns refocused its considerable resources to bid for the defunct Great Southern schemes, and ultimately outmuscled bids launched by local candidates – industrialist Gordon Martin and forestry veteran Tony Jack – to take over the forestry schemes.

The consensus view is that there is plenty of value in the timber schemes; it’s just that the debt-laden Great Southern, founded by John Young and headed by Cameron Rhodes, mismanaged its business.

Gunns chief executive Greg L’Estrange has promised investors the company will provide clarity on the expected returns in the first half of 2010, but conceded they would be less than those contained in the original Great Southern prospectus.

The Great Southern deal also allows the Gunns pulp mills access to increased supplies of plantation timber, as Gunns is planning to sell some of the Great Southern timber to itself when the trees are ready for harvest.

Mr L’Estrange said the company would engage an independent forester to make sure investors got the correct price for their trees, and noted that some of the collapsed schemes were in Tasmania, which made the transaction a logical one.

Each of the losing bids, run by Messrs Martin and Jack, is understood to have spent up to a six-figure sum competing for the assets, although the latter pulled his bid before the bills really racked up.

Great Southern investors who were randomly allocated timber lots on third party leases that were breached during the collapse – as opposed to lots located on Great Southern-owned land – cannot take part in the Gunns proposal and will therefore lose their investment.

Investors of the horticultural schemes are also heavily out-of-pocket after the receiver opted not to resurrect the schemes, citing a lack of bidder interest.

However, those exposed to Great Southern olive schemes may feel exceptionally hard done by after the receiver, McGrathNicol, opted to wind up the schemes and reject a bid to resurrect them through a combined Kailis Organic Olive Groves and Sumich Olive Group of Companies proposal.

There have been accusations that McGrathNicol has favoured strategies that upheld the interests of bank creditors – who appointed the receiver – ahead of investors.

In contrast, the firm appointed to oversee the Africa-focused nickel exploration and development company, Albidon Nickel, during a time of great distress has been widely commended.

In March 2009, Albidon was served default notices by financiers related to the company’s Zambian nickel mine. KPMG was appointed as voluntary administrator as the cash-strapped company attempted to bed down a funding deal with major shareholder Jinchuan Group.

The nickel miner was eventually recapitalised by Jinchuan and the Matthew Woods led-KPMG team won the state award from the Turnaround Management Association for his work.

Another Chinese company was at the centre of an investment in another cash-strapped Australian-based miner in 2009, with Zhongjin’s $45.5 million cash injection in Leederville headquartered miner Perilya.

The transaction, which occurred early in the year, handed the Chinese company control of more than 50 per cent of the distressed zinc and lead miner, which has operations in Broken Hill in NSW.

The transaction was approved by the Foreign Investment Review Board in what was its first major decision after the global financial crisis took hold. Perilya argued that it didn’t have any other means available to raise the funds, and that if a deal wasn’t done, it would have had to shut its loss-making mining operation.

One investment adviser told WA Business News the transaction was significant because the deal might not have progressed if it were negotiated under current conditions.

“In terms of timing, it would be hard to get 51 per cent Chinese control through FIRB now,” the investment adviser said.

Fellow zinc and lead miner CBH Resources criticised the Chinese placement, in what has turned into a long-running saga between the rival companies.

Perilya was engaged in a $489 million friendly merger with CBH, which later turned hostile and was ultimately unsuccessful.

In a twist, CBH Resources this week hosed down speculation it was now the target of a takeover bid by Perilya.

Perilya recorded a $77.2 million net loss in the first half of fiscal 2009, before it said its new operating plan delivered a small net profit in the second half.

 

 

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