The Business

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Gunns left fighting for its life

Updated September 03, 2012 22:29:38

Tasmanian timber company Gunns is entering its sixth month in a trading halt, with a $900m loss for the year and a debt to the banks of more than $500 million.

Source: The Business | Duration: 3min 20sec

Topics: business-economics-and-finance, timber, tas, australia, asia


TICKY FULLERTON, PRESENTER: Tasmanian timber company Gunns is fighting for its life.

The future of the operation lies with the banks who are owed more than $500 million.

With few assets left, analysts say the future looks bleak for the once-thriving company.

This report from Tracey Kirkland.

TRACEY KIRKLAND, REPORTER: Tall timber. At its peak, Gunns was a $4-a-share company boasting an annual profit of more than $100 million. Its fall has been long and hard.

ROBERT EASTMENT, TIMBER INDUSTRY ANALYST, INDUSTRYEDGE: Gunns have gone from being the largest woodchip exporter certainly in the Southern Hemisphere. potentially there for a while in the world. They have now obviously gone from there to virtually nothing.

TRACEY KIRKLAND: Employee numbers have been slashed by half to just 600 and its share price is sitting at 16 cents. The company has been in a trading halt since March and has asked for an extension.

In the dying moments of reporting season last week, the company announced an annual loss of $904 million with an asset devaluation of more than a billion dollars. So how did things go so horribly wrong?

MATTHEW TORENIUS, FINANCIAL ANALYST, SHADFORTH FINANCIAL GROUP: The collapse of the MIS schemes within Australia has been a big negative on the company's cash flow. We've seen an increase in supply of woodchips into the Asian region. We've seen an increase in the Australian dollar, which has hurt not only Gunns, but obviously a number of other manufacturers in Australia. And, look, it's fair to say also the - some ill-timed acquisitions.

TRACEY KIRKLAND: What's left is a massive debt. Banks are owed $559 million, most of which is due in December. That means a real risk of falling into administration and soon.

MATTHEW TORENIUS: Really it all rests on now a white knight investor coming in and putting more equity into the firm. But whether they decide to take equity. They may well decide to buy the debt and then look at restructuring the company from there.

TRACEY KIRKLAND: The insolvency firms are circling.

MATTHEW TORENIUS: The sort of companies that tend to - and investors that tend to look at these situations are those that are interested in investing in distressed debt, vulture-type hedge funds that will come in and be able to buy assets at a substantially discounted value. There has been some speculation that there are some private equity firms both here and overseas looking at the company.

TRACEY KIRKLAND: With timber mills assets in South Australia, plantations in Tasmania, as well as the controversial pulp mill project, Gunns is currently valued at around $24 million. Several Asian investors have expressed interest in a joint venture, but even that seems to be losing traction.

ROBERT EASTMENT: You need a resource, you need the wood, the supply, you need the mill and then you need the market in which to sell it. You know, you can't have two, you can't have a mill and a market to sell your wood if you can't get the wood coming in.

So it's very much an integrated process. And as we move forward, Gunns is probably becoming less integrated and therefore it's harder to sell.

TRACEY KIRKLAND: The company's real value lies in the potential of its plantations, but that's also been reduced with the spiralling price of woodchips.

ROBERT EASTMENT: Will the woodchip market turn around? Yes, it probably will over time. It won't continue, I don't think, to go down.

TRACEY KIRKLAND: But whether that gives Gunns enough time to avoid the chop looks more and more doubtful.