N.Z. not Chile is CHH concern

Press, 5 September 1989, Page 41

N.Z. not Chile is CHH concern

NZPArßeuter Auckland - The forestry company. Carter Holt Harvey, says it is more worried about operations in orderly New Zealand than its large investments in politically volatile Chile.

“We don’t see, if the (Chilean) opposition do come to power, — and that is the most likely scenario — that there will be significant changes to the economic management of the. past few years,” the executive chairman, Mr Richard Carter, said in an interview. CHH joiritly owns 59.1 per cent of Chile’s largest company Compania de Petroleosde Chile SA (Copec). Copec accounts for over 5 per cent of Chile’s gross domestic product with extensive forestry, energy and fishing operations. General elections are scheduled for December 14, ending 16 years of rule by military President Augusto Pinochet who seized power from an elected Leftist Government in a bloody coup. Mr Carter; aged 54, who with twin brother and ‘managing director, Ken, owns 26 per cent of CHH, said the New Zealand Government’s plan to sell State forests supplying CHH mills arid the lack of evidence of an upturn, in the economy were more significant worries. Despite this CHH has predicted that profits will rise to between $165 million and SI7OM for the year to March 31, 1990. Mr Carter i attributed the projected rise from :$136.6M in 1988/89 mainly to restructuring local operations and good profits from Copec. "Most of the local improvement has come from 'turning the company upside dowri, rather than from a significant increase in the level of business,” he said. Mr Carter expressed concerns over Government plans to sell cutting rights for, 540,000 ha of State forests. > j CHH is 65 per cent dependent on

State timber supplies and has only short-term contracts. "It is the single major issue that is of concern to us,” he said. CHH has already won Commerce Commission permission to bid for some of the cutting rights. . Failure to secure supplies from forests in the North and South Islands would threaten the viability of pulp and fibreboard mills, but success would allow large investment expansion, he said. "Once we have settled the forests issue we will know if we are putting in two newsprint machines in Napier, we will know whether we double the fibreboard capacity at Rangiora. You are talking a billion dollars,” Mr Carter said. Funding for expansion might be a problem for CHH as it was only just getting its balance sheet in shape after the 1987 Copec purchase and S3OOM purchase of Caxton Group’s forests. CHH plans a SI2OM convertible bond issue in Switzerland this month to go with a 173 M Swiss franc issue in March. CHH aims to raise its equity to debt ratio to 60:40 by March from the present 55:45. Australian Ratings Pty downgraded CHH’s credit two levels in February to 88-minus from 88-plus-on concerns about high leverage and the depressed state of New Zealand’s economy. One source of funding might be the disposal of CHH’s extensive manufacturing interests, decimated by restructuring of the New Zealand economy, but now profitable. "As time goes on we will become more and more directly orientated to the thing we know most, which is

the forest-based activity. As the manufacturing operations lift themselves out of the recession of the last couple of years, they could well go as a block on the market,” Mr Carter said.

“If the right circumstances occurred ... I wouldn’t take a lot of persuading to take SSOOM for those and put SSOOM into one core activity — a pulp or paper mill.” If CHH does switch to expansion it will parallel Copec where a SUSI billion five-year investment programme has begun. The bulk of this, partly funded by a World Bank loan, will go into building a 350,000 tonne capacity white cellulose pulp plant at Arauco, 480 km south-west of Santiago. Copec is expecting a two-year payback on its investment. “It’s basically being done at a time of high prices against what is in Chile a very low cost structure relative to other countries,” Mr Carter said. He is expecting a slowdown in Copec’s improvement from losses in the mid-1980s to a net profit in calendar 1988 of SUS2IO.7M. Mr Carter welcomed Pinochet’s departure. “It is the most sensible thing. Changes that were necessary have been made.

“We see risks in the upcoming election more towards the tax end rather than tear of nationalisation.”

He expects the new Government to raise corporate taxes from zero (with a 35 per cent tax on dividends) to 15 to 20 per cent to fund social programmes. "A corporate tax rate of 15 to 20 per cent to us is not unreasonable, but I am bound to say that to the Chilean businessman it is rape and pillage.”