12 January 2011

Greenheart Group, a Hong Kong-listed forestry investment company, plans to issue new shares in Hong Kong as part of a US$77 million buy-up of Mangakahia forestry assets in Northland.

Greenheart plans to raise US$37 million through a share issue to buy 11,000 hectares of radiata pine forests once-owned by Carter Holt Harvey, from its own major shareholder, China's Sino-Forest. The US$40 million balance will be funded through a loan either provided by or guaranteed by Sino-Forest, the company said in a statement on Monday.

As part of the agreement, Greenheart has the option to sell up to US$210 million worth of timber products to Sino-Forest over the next three years, but isn't obliged to if it can achieve better prices elsewhere.

Canadian-listed Sino-Forest has some 726,000 hectares of tree plantations across China, and the deal will look to leverage the Chinese company's sales and marketing clout in the world's most populous nation. That will leave Greenheart to focus on building a forestry portfolio that it will own and manage. It currently owns forests in Suriname, in South America.

"China's demand for New Zealand radiata pine has increased significantly with New Zealand being the second-largest exporter of softwood into China after Russia," Greenheart chief executive and Sino-Forest vice-chairman Judson Martin said in a statement.

This is Sino-Forest's second attempt at partial ownership of the Mangakahia forest, after the joint venture with Taumata Plantations Ltd., which bought most of the CHH forestry assets in 2006, ended last year.

Sino-Forest took a majority 59 per cent in Greenheart, formerly Omnicorp, last year, and a further 1 per cent is held by Hong Kong private equity fund managers General Enterprise Management Services International (GEMS), which holds a seat on Sino-Forest's board.