Dark facts uncovered by White Knight. Will prefers Lton Cup to White Knight. Repeal PMAA Petition

Tassie Devil

Dear Editor,

I notice your local press and politicians are blaming Greens and their supporters for the announcement by Richard Chandler Corporation that they will not be proceeding with an investment in one of your local forest companies. They all seemed to have overlooked that preliminary due diligence may have discovered other mitigating factors that may have contributed to the decision. The attached email may shed some light on some of those factors.

Yours sincerely.

Singapore Sam

From: ……………………
Sent: Monday, 5 March 2012 4:35 PM
To: ……………………
Cc: …………………….
Subject: Gunns due diligence

Hi ……….

I will be recommending to the Board that we don’t even bother proceeding with Stage 2 of the due diligence.

Can’t find too many YES boxes to tick.

Will be sending full report tomorrow am.

Just a few dot points at this stage.

• The balance sheet is still a work of fiction.

• The sawmill would be lucky to fetch half of the book value.

• Nobody wants to buy the debtors, the loans owing, and they are slowly going bad.

• The land is a real mixed bag. Some good stuff some awful. A lot of the good stuff is leased to thousands of Growers. Only the Aussies could dream up a ridiculous scheme like they have called MIS to help people avoid tax, essentially a Ponzi scheme that fell over when new entrants couldn’t be persuaded. The result is a legal minefield. Spoke to a colleague working for BRI Ferriers in Sydney, insolvency guys winding up another failed forestry company and he warns to steer away from companies with MIS schemes.

• We will be responsible for looking after MIS growers’ trees until harvest on a deferred fee basis. Not what we planned. The downside looks awful cash flow wise, hundreds of millions of $AUD in committed lease agreements plus all the ongoing maintenance and running costs with plantations. Maybe a few shekels at the end of the day. Not what we want.

• It seems as if the costs of cleaning up and replanting MIS crops will be ours.

• A lot of land is pretty ordinary, with a lot of slow growing plantations. The MAIs are all over the show and the age profiles have got big gaps. Not ideal for what we have in mind.

• The Revenue authorities are having a second look at the company. I don’t understand the Aussie tax law, and I haven’t followed this up at this stage, something to do with consolidation and company Groups. Whatever happens, I’m told there’s no upside.

• No upside either with a class action against the company re lack of continuous disclosure to the stock exchange Regulator. The previous Chairman/CEO sold shares within what the company now considers to be the prohibited period for management/Directors to trade their shares. If he knew something the Regulator should have been told. The share price crashed when 1H results were posted. It doesn’t look promising.

• In summary the balance sheet liabilities look manageable. It’s the contingent liabilities which look seriously scary.

• The banking syndicate insisted on an arm and a leg to extend the loans until we contribute because of the lending breach. The rollover fee of $AUD30m plus all the extra interest will see half our cash lost within a year. Haven’t spoken to the banks yet.

• Spoke off the record to a couple of instos. They’re a bit ambivalent about taking up the rights given the dilution. They might take their chances.

• Not too impressed with the Board. Nice guys. And so are management, but I wouldn’t employ any of them. Slow to move from the past, the old lumber company culture we’ve seen before. Not sure about their skill set. They’ve presided over the mother of all stuff ups. They’re trying to sell assets but the company is devouring cash faster than it can be printed and the bank debt is still rising. The loss of shareholder value over the last 3 years is breathtaking and they haven’t reached the bottom yet.

• Don’t even consider a full takeover, the Regulators, the complicated land assets, the MIS responsibilities, the continuing losses, the story goes on and on.

• The assets are years away from producing income. We’ve dealt with many companies adapting, restructuring and changing tack but I’ve never encountered a company with such a badly executed and painful transition process.

• You remember the Government delegation the other day. It seems the head honcho was indicted by his own Government on two occasions for serious, I think, criminal charges, although I haven’t read the cases, and he only got off because of hung juries, a luxury as you know we don’t bother with here. It seems he’s trying to organize funds from the Australian Federal Government (legally this time) to help restructure the forest industry, while the other chap we met, the earnest dimwitted fellow, I think he was the leader of the largest Opposition party, doesn’t want the funds. Not sure what he plans. Don’t think he does either. To think they knocked on our door as part of a united delegation. We’d go crazy if we had to deal with those guys too often.

You should have the full report by 8am.

Bill says his report on company governance, government relations and corporate citizenry will be ready for the Board tomorrow. Don’t expect too many YES boxes with ticks.

Cheers,
………………….

• Follow today’s Share Price here

• Earlier on Tasmanian Times: Gunns White Knight gallops off

• AFR, Tuesday: Gunns’ key investors take potshots at Chandler

Carrie LaFrenz

Gunns’ biggest investors’ reluctance to sell off a major stake in the company cheaply played a big part in scuttling Richard Chandler Corp’s proposed $150 million investment in the timber group.

While Gunns has blamed anti-pulp mill campaigners and environmentalists have taken some credit for derailing the investment, shareholders were unhappy about how much the Chandler investment would have diluted their holdings.

Under the deal with the billionaire investor based in Singapore, the timber company was planning to issue nearly 2 billion new shares via a placement to Richard Chandler Capital Corp and conduct a $130 million rights issue at 12¢ a share. The deal would have given Mr Chandler roughly 40 per cent of Gunns and at least one board seat.

Several key shareholders said yesterday they felt Mr Chandler was not going to add much to the project. Mathews Capital, Perpetual Investments, Invesco and Schroder Investment Management are among Gunns’ biggest shareholders.

Full story, AFR, here

• ABC Online: Gunns trading halt continues

Tasmanian timber company Gunns is trying to raise capital from existing shareholders after the collapse of the $150 million investment deal with an overseas investor.

The company expects trading in its shares to remain suspended for a further four days.

Gunns has extended its trading halt pending an announcement on a new capital raising strategy.

The halt began on Friday after the Richard Chandler Corporation scrapped its plan to take a 40 per cent stake in Gunns.

In a statement to the stock exchange, Gunns says it will offer new shares to shareholders and is in negotiations with a new institutional investor.

It says the capital raising is ‘material to the company’s financial position and strategy’.

Shadforth Financial Group’s Matthew Torenius says if the move does not work, Gunns would be left with few capital-raising options.

“The company would then need to look at is further asset sales and would essential have to be more aggressive in those asset sales,” he said.

Mr Torenius says the capital raising is crucial for Gunns to pay debts.

“If the rights issue isn’t successful it would be a big negative for Gunns,” he said.

“They still have a large amount of debt that they need to get off the balance sheet, so what the company would then need to look at would be further asset sales and would essential have to be more aggressive in those asset sales.”

Gunns chief executive Greg L’Estrange has said the company could sell its Tamar Valley Pulp Mill project.

Gunns has declined to comment further on this morning’s announcment.

The State Opposition believes the Government should accept responsibility for the failed deal between gunns and The Richard Chandler Corporation.

Read the rest, ABC Online here

• SMH: Gunns flags potential new investor

It might not look like it, but Tasmanian wood-chipper Gunns’ request this morning for its shares to be suspended for another four days is actually positive.

Gunns’ request for the extra time contains a revealing disclosure that, after the embarrassing collapse of its $150 million funding deal with Richard Chandler Capital, it potentially has a new benefactor — and appears likely to be able to get an underwriter to its share issue.

‘‘Since trading in the company’s securities was placed in a trading halt on Friday … the company has been actively negotiating a capital raising … with the company’s major shareholders, a potential new investor and investment banks,’’ its request for the extended trading halt said.
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The last two parts of that sentence are important – that Gunns has not only a replacement for the clay feet of Chandler, but that it also has investment banks working with it.

Investment banks are not charities, and an underwriting fee in this slow-moving sharemarket environment would be a strong lure – provided they can find clients willing to take up Gunns’ stock.

That suggests that Gunns, the institutional shareholders who helped torpedo the Chandler deal (largely on the grounds that it would cede control of the company to the Singapore-based, New Zealand founded group) and the banks are openly acknowledging the whole deal is about everyone becoming investors in its controversial pulp mill.

Read more: http://www.smh.com.au/business/gunns-flags-potential-new-investor-20120313-1uxdk.html#ixzz1oz7IWFSS

First published: 2012-03-12 04:10 AM

• ABC Online, Thurs, Mar 15: Launceston Cup vs Gunns investment

Will Hodgman says he was at the Launceston Cup when representatives of the Richard Chandler Corporation visited Tasmania a fortnight ago, as the company decided whether to invest $250 million in Gunns.

The company told the markets yesterday it was working on a new capital raising as it tries to secure finance for its Tamar Valley pulp mill.

Mr Hodgman says he could not find time in his diary to meet Richard Chandler’s representatives because of prior engagements.

“The Launceston Cup was one of them and meetings on the North-West Coast,” he said.

“One was with Brett Whiteley, who announced his intention to hopefully stand for the Liberal Party and I had another meeting with branch members that night, an electorate meetings.”

The Premier Lara Giddings says it is disgraceful that Mr Hodgman did not make time for the Richard Chandler Corporation.

Read the rest, ABC Online here

• PETITION CALLS FOR REPEAL OF PULP MILL ASSESSMENT ACT

Kim Booth MP
Greens Forestry Spokesperson

The Tasmanian Greens today tabled another petition in the House of Assembly calling for the repeal of the corrupt Pulp Mill Assessment Act 2007 passed by the two major parties in Tasmania.

Greens Forestry spokesperson said the petition was another reminder of the Labor and Liberal parties’ complete lack of concern for residents in the Tamar Valley, whose health and livelihood were being directly threatened by the proposed mill.

“The anger of Tamar Valley residents still hasn’t gone away, even after nearly five years, and it won’t go away until this proposal is scrapped,” Mr Booth said.

“Critical issues like as air quality, water capacity, effects on native forests and catchments, road safety and infrastructure damage were not assessed because this legislation was corruptly rammed through the Parliament in 2007.”

“Nor was there an independent risk assessment of any potential economic damage to other vital industries such as tourism.”

“The community anger clearly demonstrated by this ongoing petition should increase the pressure on Labor and Liberal MPs to vote end their support for a toxic pulp mill in the Tamar Valley.”

The petition reads:

TO THE HONOURABLE SPEAKER AND MEMBERS OF THE HOUSE OF ASSEMBLY

The Petition of the undersigned Citizens of Tasmania draws to the attention of the House that the passing of the Pulp Mill Assessment Act 2007 by the two major parties in Tasmania undermined Tasmania’s democratic institutions. The Act provided a rubber stamp approval to the Gunns pulp mill in the Tamar Valley, after it had bene found to be critically non-compliant by Tasmania’s independent planning authority, the Resources Planning and Development Commission.

Your petitioners therefore pray that the House repeal the Pulp Mill Assessment Act 2007.