could gunns go bust!?!, page-2

Hi Mike

I know you well from the MML blog so interesting to see you over here on GNS.

Anything is possible in the current bizarre economic times and I wont say GNS could not go broke, as the market cap to debt ratio seems to imply.

I have looked at the numbers very closely. Essentially they have $600m of total debt of which $370m is secured debt to be repaid by early next year. They have just sold some Vic Tree assets cheaply for $107m..so that takes total debt down to about $500m. Of the remaining assets I would value pretty much on a close to worst case basis as follows;

Tasmania Plantations $400m (less than 50% of book)
Timber Mill Business $150m (mostly rec and inv)
Native forest Exit payout $50m
MIS business $200m ($350m less $150m prov for l&m costs)
total $800m

The $800m would appear to cover the $500m in debt as well as the $125m in pref shares. Interestingly it implies the current share price is about right. GNS is looking for about $550m for the Tas Plantations but I have been conservative.

At any rate which ever way I cut it I come to the following conclusions;

1) the secured debt holder of $370m will definately get paid, hence no need for ANZ to push for receivership.
2) all other debt holders most likely to be paid as well.
3) MIS growers left in an uncertain position as to who will own and run the underlying land and MIS business.
4) and this is perhaps the most interesting conclusion....on these numbers GNS CANNOT build the pulp mill by itself. It would appear to be a fantasy.

I suspect GNS should admit defeat on the pulp mill, sell 50% of the Tas Plantations for say $200-250m and repay all of the secured debt. Then focus on running a lean and mean timber business with what they have left. And wait for the eventual sharp upturn in the woodchip business which will happen in a few years when the current glut has passed by.

Once again I cannot see bust for GNS but with the caveat that the US politicians almost chose to default on their debt..so anything can happen and economically we seem to be going into GFC mark 2......but then again I cannot see much equity upside unless the pulp mill goes ahead..but without a partner seems impossible.

perhaps UPM is forcing GNS to do all the hard yards and then swoop in at the end and take the mill for a song....maybe that is their game, if there is one



Just IMO
Cheers