Gunns $400m recapitalisation puts mill on line

Gunns $400m recapitalisation puts mill on line

May 5, 2012

GUNNS has pulled back from the brink after a two-month suspension from the stock exchange. The Tasmanian forestry company is believed to have won the backing of institutional shareholders for a $400 million-plus recapitalisation, which will allow it to pay down debt, realise the value of its plantation estate and develop its controversial pulp mill without an equity partner.

One fund manager who is substantial in the stock, speaking off the record, said Gunns’s main problem had been its stretched balance sheet, and there was ”huge value in the company” not reflected in its share price.

Gunns was suspended from trade at 16¢ on March 9 after New Zealand billionaire Richard Chandler withdrew from a $150 million recapitalisation. The company had net tangible asset backing of 88¢ a share at the end of last year.

The fund manager said Gunns could not realise the value of its assets, including a 150,000-hectare plantation estate, with its bankers at the door.

Gunns, which now has a market capitalisation of $136 million, owes more than $550 million, including a $340 million syndicated facility with banks including ANZ, which expires at the end of the year but must be paid down progressively. Institutional shareholders are believed to accept Gunns capital raising is needed, whether or not it leads to successful development of the $2.3 billion bleached kraft pulp mill at Bell Bay, in the Tamar Valley.

But if Gunns pulls out of the project it will be forced to write-off capital costs of $232 million as at December 31. Industry analysts say Gunns’s pulp mill would be internationally competitive notwithstanding a high dollar, and rival hardwood pulp mill developments coming online in Latin America and China.

Gunns’s chief executive, Greg L’Estrange, whose contract expires in July, was overseas meeting investors this week and would not comment on the capital raising but has told BusinessDay the pulp mill was in the top quartile of cost-competitiveness worldwide.

”It’s competitive at [an exchange rate of] $1.05,” he said. ”It’s the only manufacturing project in Australia, let alone Tasmania.”

Gunns will resume trading on release of the capital-raising documents, including a prospectus for retail investors. The fund manager said if Mr L’Estrange was able to finalise the recapitalisation he had ”done what’s required. He’s done an enormous job”.

”There’s a bit more work to be done in terms of asset sales and progressing this current transaction but once that is all completed the key guy … will be [project director] Timo Piilonen who is very experienced in building pulp mills.” The manager said environmental opposition to the mill had diminished since Gunns pulled out of native forest logging.

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