Shane Jones to Graeme Hart – open your chequebook
The Minister of Forestry is calling on New Zealand’s richest man and other wealthy investors to “put capital on the table” and expand their investments in forestry.
The call comes as multibillion-dollar investment funds have already begun circling, looking to capitalise on Overseas Investment Office (OIO) rule changes announced last week by the Coalition government.
New Zealand First’s Shane Jones, the minister for forestry and regional development, is expecting the forestry sector to grow from a $6 billion a year industry to $15 billion by 2022 – largely through the government’s new plans around overseas investment.
A new OIO directive means the sale of any land more than five hectares will need the office’s approval and the onus on investors to provide “benefits” to New Zealand has been increased. But forestry escapes the tighter rules with a separate directive that encourages "value-added wood processing to generate jobs and other benefits” and will place high importance on increasing the processing of primary products.
This directive says the OIO will impose “conditions on consent” on potential forestry investors, for example, a requirement for overseas investors to make a supply arrangement with a local processor. It will also recognise that conditions imposed on forest land may need to be for lengthier periods than normal given the often long-term nature of these investments.
"The intention is to send a clear signal that there is a place for foreign direct investment in our forestry sector,” Mr Jones says.
The forestry directive will also help when it comes to the government's plans to plant one billion trees over 10 years, with half of that expected to come from the private sector, Mr Jones says.
He also expects New Zealand sawmills and other timber-related industries will start expanding as a result of the directive.
Mr Jones singles out building supplies merchant and producer company Carter Holt Harvey owner Graeme Hart, calling on him to "dig into his pockets and expand his investments in the value-add side of forestry".
He adds it would be “fantastic to see investors and owners in the domestic processing sector, including Mr Hart, put capital on the table.”
Carter Holt Harvey owns building supplies merchant Carters, which has more than 60 locations nationwide, and Woodproducts NZ, the country's largest producer of wood-based building products.
A spokeswoman for Carter Holt Harvey says the company would not respond to Mr Jones’ comments.
But, given Mr Hart has been selling off parts of Carter Holt since his Rank Group bought it for $3.6b in 2006 and at one stage indicated a partial public listing, it would seem unlikely Mr Hart would be looking to expand the business substantially by investing more into it.
Despite calling for Mr Hart to expand the business, Mr Jones says he’s not going to “waste what mental energy I’ve got trying to second guess what his investment trajectory is likely to be.”
Already considerable overseas interest
The signal from the new forestry directive that forestry is still open to overseas investment is already bearing fruit, Mr Jones says, as he has already been contacted by several overseas investors.
Russell McVeagh partner Tim Clarke also confirms sizable overseas investment funds are taking more interest in the sector. Though he won't be specific on which funds, he says they're from Europe, Asia, Australia and the US and have war chests containing billions of dollars.
“For example, European pension funds, including German pension funds, look to match their investment profile across the length of their commitments, they’re taking an 80-year plus investment horizon.
“Investment in forestry is seen as a highly attractive option and New Zealand is seen as a stable democracy, committed to the rule of law and an increasingly attractive investment environment for the forestry sector.”
He thinks the New Zealand log and timber industry will get a sizeable shot in the arm.
Mark Rogers, the managing director of New Forests – one of the biggest fund managers in Australasia with an $A4 billion investment fund – is markedly upbeat about New Zealand's investment potential.
He says the OIO process for forestry under the last government “lacked attention and focus” but, given the changes, his fund will be “doing everything we can to support that programme and get our investors involved in that.”
Around half of its third Australia/New Zealand forestry fund, which is nearly $900 million, will be invested in this country, although that figure hasn't changed since the new OIO rules were announced.
But Mr Rogers says the new rules are a “double-edged sword” as all the fund’s competitors will be keen to invest as well.
“[Forestry] is not as big of an asset class as some others, so when it gets attention because there are positive sovereign regimes promoting it, there is a fair bit of money floating round to invest in that space.”
A loophole in the directive?
Marty Verry, chief executive of Rotorua-based timber company Red Stag, says there is a loophole in the government’s forestry directive as it does not include provisions for cutting rights, where the landowner
sells the rights to grow trees on the land and the logs can be traded independently.
“If I own a big forest and I sell the cutting rights to a Chinese investor who takes all those logs back to China to process, it circumvents what we’re trying to do with these new forestry rules in regards to the OIO,” he says.
“It’s definitely a way around it. If someone does see a very high bid from offshore with it that they want to accept and that offshore buyer is going to take all the logs away then it circumvents all the new rules.”
But James Treadwell, chief executive of consultancy Innovate Forestry Specialists (IFS), is unconvinced this will be a problem because cutting rights have existed for years without too many issues with offshore processing.
“I can think of it happening a few times but when it does [the buyer] very quickly gets a bad name and people are discouraged to sell to them.”
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