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Fear grows from Timbercorp collapse

Posted on July 24, 2009, 8:08am

SPECIAL REPORT:

Fears of economic ruin from the collapse of Timbercorp are spreading from the bluegum heartlands of the Green Triangle and Western Australia to thousands of investors throughout Australia who put money toward forestry schemes and now may never see a return.

“One woman I met in Sydney said that when her husband was dying he said ‘put all of our money into a real solid investment — trees’,” Penola Pulp Mill director John Roche told a meeting in Hamilton on Tuesday night.

“You can imagine how she feels today.”

Mr Roche said people who borrowed money to invest in Timbercorp faced deeper peril as the only certainty they had was that their loans would have to be repaid.

“People from the 2008 scheme say they have paid all the money — rent and everything — and now been told the trees aren’t even in the ground,” he said.

“I’ve had contact with more than 3500 grower investors — most people have no intention of paying any more money because they think they are throwing good money after bad and can’t see anything coming back.”

But it is not only “mum and dad investors” likely to lose out after they acted on advice to put their savings into the schemes due to promises they would provide better long-term returns than other options for their money.

Timbercorp used the investors’ funds to plant and manage plantations on land it brought or leased from farmers, who have now seen rent payments dry up as activity stalls while administrator KordaMentha tries to unwind the mess — including debts of $600m.

“Someone spoke to me in the last 24 hours who was retired and totally dependent on rent from their land — they are desperate,” said western Victorian landholder Ian Ellis at the meeting.

Mr Ellis said farmers who leased land to Timbercorp had power under their contracts to seize ownership of trees on their properties if the rental income flow stopped — as it now has.

The argument has led to some investors arguing rent payments should continue to be made so they do not lose their assets.

However, Mr Roche, who heads a consortium trying to prevent the splitting up of Timbercorp’s forestry assets, said a protracted legal battle over who owned the trees would not be in the interests of anyone, particularly farmers.

“It won’t be as easy as saying bugger off, the trees are mine,” he told landholders.

“What are you going to do with them?”

Mr Roche said plantations should be maintained as one asset.

He said a harvesting team would cost tens of millions of dollars and nobody would undertake the logging job on the scale required by small landholders, while sale of wood in individual lots would also be a challenge.

“It’s just not practical — it can’t be done,” he said.

However, Branxholme farmer Philip Baulch said he disagreed, stating Midway was already harvesting bluegums in western Victoria for export through Portland.

He said while contracts had not been at anticipated levels, it was “still good stuff and there is good money in it”.

“So options are there,” he said.

But Mr Roche said there were also more immediate concerns requiring a prompt resolution, such as the lack of insurance on plantations as the fire season loomed and diminishing assets as seedlings floundered and weeds began to dominate recently planted trees.

He said many landholders could also not meet the costs of fencing and fire breaks on large plantations or were reluctant to spend on the trees when their ownership could be challenged in court.

If farmers did take ownership and cleared the trees to return the land to farming, rehabilitation could cost up to $5000 per hectare, according to Mr Roche.

Mr Ellis said this was an existing problem for farmers, prior to Timbercorp’s collapse, but many hoped plantations would be an ongoing feature of their properties.

Mr Roche said one thing was clear — new arrangements for the future of the forests were urgently needed and “managed investment schemes are not good for trees or anything else”.

“The fact Timbercorp and Great Southern have both fallen over proves that point,” he said.

Growers urged to have assets valued

Penola Pulp Mill director John Roche has urged Green Triangle landholders who have leased land to Timbercorp to form a committee to help his consortium conduct a valuation of bluegum assets in the region.

Fewer than 10 landholders turned out for the regional meeting at Hamilton on Wednesday night, where Mr Roche tried to convince people to follow his consortium’s path for a resolution from the agribusiness-manager’s collapse.

He told people at the gathering that court action was too protracted and would not suit them, calling for those affected by the collapse to instead work together and ensure the “critical mass” provided by Timbercorp’s broad forestry assets was not broken up.

Mr Roche said investor growers had backed the TC Grower consortium’s plans, but he also needed landholders’ cooperation.

The consortium, which also includes industry fund First Super and an unnamed international forestry manager, has met over the past week with Australians across the nation who invested in Timbercorp.

Mr Roche was the sole representative of the consortium in Hamilton and was joined by Wattle Range Council Mayor Mark Braes, who chaired the meeting.

The consortium plans to appoint an independent consultant to conduct a comprehensive valuation of the forestry business, including land and trees.

Mr Roche said data would then be provided to scheme investors so they could decide whether to sell their trees, continue making payments through until harvest or ask new managers to meet ongoing costs and deduct the amount from harvest proceeds.

He said the valuation was crucial as the first step and could be underway within 10 days.

However, landholder Ian Ellis disagreed with Mr Roche’s claim the value of the forestry assets was not known, stating it had been monitored by Timbercorp.

But Mr Roche said investors needed a clearer understanding.

“It is important for the people paying the money to get a proper valuation of what they have bought and what it is worth so they can say whether they want to continue paying rent or not,” he said.

Mr Ellis said a valuation would find there would not be sufficient money to satisfy investors and lessors as original expectations of profits from the schemes had not been realised and questioned how much more money would be lost from the asset value through the involvement of TC Growers.

But Mr Roche said the consortium had not stepped in for short-term profit, but was looking at a long investment to sustain the $1.5b mill and exports.

“The pulp mill will underpin forestry for more than 50 years,” he said.

He said the mill had been proceeding at an “unbelievably fast pace” with negotiations nearing finalisation with European financiers and woodchip supply agreements in place with Timbercorp before the collapse.

But he said TC Growers would not continue managed investment scheme arrangements if it acquired Timbercorp’s assets, instead using them to develop a “proper industrial forestry business”.

He said an official scheme meeting would be needed to allow TC Growers to move through with its plans.

“We’d hope in 12 weeks to be at a stage where we could make an offer that gets the business back together again and moves it forward,” he said.

Mr Roche said the valuation could be shared with stakeholders to assist their negotiations or court action, regardless of whether they traded with TC Growers.

He said the consortium’s work, involving lawyers and valuations, would cost millions.

“We’re doing it because we do believe there is a solution to the problem,” he said.

Landlords consider legal options

Green Triangle landholders who leased land to Timbercorp for bluegum plantations were expected to come together under a new group last night.

The Green Triangle Timbercorp Landlords Group was scheduled to meet in Hamilton to discuss issues facing lessors and determine whether there was value in acting collectively, rather than individually.

Local solicitors had been invited to assist the group in understanding its legal position as battle lines are drawn between various stakeholders affected by the Timbercorp collapse.

The move follows a Federal Court ruling earlier this month that a western Victorian farmer said left landholders “feeling like we have been shat on from a great height”.

However, Timbercorp administrator Mark Korda has dubbed Justice Finkelstein’s judgement as a “great result” for grower investors, who contributed funds to plant and manage trees on other people’s land.

The court ruled lease obligations of Timbercorp incurred prior to the group’s collapse were not expenses the liquidators must pay in priority to all other creditors’ claims.

A landlord had asked the court to rule owed rent should be treated as an expense by the liquidators and not a Timbercorp debt, which may have led to trees being sold off to pay landlords ahead of other creditors.

“The status quo has been preserved to enable the liquidators to make better informed commercial decisions about how to either recapitalise the growers schemes or, if that is not possible, maximise the returns to growers and other stakeholders,” Mr Korda said.

The court also acknowledged landlords’ legal rights to take further action to recover their properties were preserved.

Liquidators are expected to again ask for support from landlords to enable them more time to find a way forward from the Timbercorp collapse after previously calling for rent payments to be put on hold.

Green Triangle economy in limbo

The world of bluegums has become one of uncertainty, leaving questions over many other sectors of the South East.

Penola’s proposed $1.5b pulp mill is at a standstill, at least until the future of Timbercorp’s bluegum plantations is known.

The resulting uncertainty over the mill has left questions remaining over strategic parcels of land throughout the region.

The Department of Transport Energy and Infrastructure has written to Grant District Council stating rail corridors consider to be under consideration for future operation of rail.

Enquiries by The Border Watch have found this is largely due to the proposed mill.

“DTEI has been negotiating with Protavia to lease the rail corridor to the pulp mill operators, who in turn will engage a rail company to upgrade the line and operate rail services,” according to a written statement.

“This is of course subject to financial close on the pulp mill and the project proceeding.

“Any lease entered into over the rail corridor will be subject to a third party access regime and DTEI is open to any other opportunities that may be presented to improve rail freight services through the South East.”

JASON WALLACE

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