The Examiner
Backing for Gunns debt deal
PADDY MANNING, OF THE AGE
06 May, 2012 08:13 AM
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 has substantial holdings of the stock said Gunns' 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 16pi9014 on March 9 after New Zealand billionaire Richard Chandler withdrew from a $150 million recapitalisation.
The company had net tangible asset backing of 88 cents 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.
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 meeting overseas investors this week and would not comment on the capital raising.
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,'' he said.
``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.''
Northern Tasmanian financial commentator Tony Gray said if Gunns' recapitalisation mission was successful, it would make their pulp mill project more attractive for joint venture.
``If they can get the $400 million through, that will allow the shares to come out of suspension, they will be able to pay off the banks, and do a bit more groundwork with the pulp mill,'' he said.
``If they then find themselves in a relatively strong financial position compared to where they sit today, it will be much easier to attract a partner for the pulp mill.
``If the news is correct, here is now a company that is going to have a $500 million market capitalisation with no net debt and all the permits and groundwork in place for a pulp mill.
``That changes things around for them completely.
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