I notice non of the other proponents are giving a tick to...

I notice non of the other proponents are giving a tick to Gunns


Gunns says hands up to investors Andrew Main From: The Australian December 14, 2009 12:00AM


THE Great Southern saga, which has preoccupied thousands of Australian investors since the rural timber group collapsed in May, is less than 10 days away from a possible resolution.
All but the most recent of Great Southern's 45-odd managed investment schemes, which have been without a manager since the parent company collapsed and took the management company with it, have always been regarded as solvent, and may now be able to move forward.

Investors found at the end of last week that the focus of the many letters and emails they were getting had changed.

Until Thursday, they had concerned the relative merits of the two or three rival proposals to take over as responsible entity for most of the schemes -- the "get out of jail free" card that they are almost all looking for.

But by the end of the week two organisations had dropped out: Pulpwood Plantations and Blacktree. The fact that there's now only one bidder standing, Gunns, changed the message to a simple "make sure you vote".

Pulpwood had ended up holding a meeting in Perth on Thursday seeking grower support but proposer Gordon Martin had already hosed down expectations of a constructive vote and only 25 people actually went along.

And Tony Jack, who led the (also Perth-based) Blacktree proposal, sent a note to growers on Wednesday night, saying that unless the Gunns proposal failed to get voter support at the meeting organised by receiver McGrath Nicol and scheduled for Sydney on December 23, Blacktree would also withdraw its proposal.

Independent of the relative merits of the schemes, Blacktree was unable to come up with a valid proposal in time. So the December 23 grower investors' meeting has gone from being important to being critical.

The "make sure you vote" note was sent out by a grower group called Save My Trees, run by investor Rob Burns, who had noted the high level of voting required to allow the replacement of the responsible entity (RE).

It stated that in order to put Gunns in to run the schemes in place of the insolvent Great Southern RE, "it needs to receive support from 50 per cent of all growers in each scheme and 75 per cent of the votes represented at the meeting".

For the first time in a while, the bulk of grower investors appeared to be on the same page as Gunns, whose proposal has the backing of receiver McGrath Nicol.

Gunns CEO Greg L'Estrange stated last week that "this is a high hurdle and it is vital that if growers want a return on their initial investment, they need to lodge a vote with the proxy forms they have been sent by no later than 11am (AEDT) on Monday December 21 2009".

"There is no guarantee that growers will receive any proposal in the future if this offer is not approved," he warned, producing the stick as well as the carrot.

"Growers must vote for our proposal for it to succeed, even though it is the only proposal available," he went on.

The grower investors ostensibly number 43,000 although there is some doubling up because some investors are in more than one scheme. Mr Burns' message to growers highlights a likely outcome if the RE replacement plan does not get up.

He said it was likely that the schemes would have to be wound up and that "the proceeds of a windup will be subject to a complex, costly and long drawn out dispute regarding distribution between growers and secured creditors," proving as nimble with the stick as Mr L'Estrange.

And, just to complicate things further, Gunns is only offering to cover the schemes dated between 1998 and 2006.

"Gunns has not made a proposal for the 2007 scheme but intends to investigate the feasibility of doing so," said a recent note from receiver McGrath Nicol.

One of many problems with these Managed Investment Schemes, which appear to have been set up without anyone considering that they might ever need to be unwound, is that the more recently planted schemes have a much higher cost structure than the old schemes because they need more maintenance.

For instance, McGrath Nicol has stated that while investors in the 1998 scheme will only have to pay 4.5 per cent of the net proceeds of sale of the timber on their woodlots if the Gunns proposal gets up, participants in the most recent scheme that Gunns has offered to manage, the 2006 scheme, will have to hand over 55 per cent of the equivalent proceeds. But that's just a part of it. The "long drawn-out dispute" that Mr Burns predicts comes about because each separate woodlot has two valid claims over it: by the CBA-led bank syndicate which is a secured creditor and has the rights to the land, and by the growers who have the rights to the trees.

If the schemes are wound up the lots would be sold with the trees on them, with more being paid for plantations closer to maturity. But the divvy-up would still be messy because the growers' proceeds would have to be paid after the trees were harvested, but not before.

There had been issues relating to a second planting of trees offered by aspirant manager Pulpwood Plantations, but Gunns' proposal is offering a rent reduction of 2-2.5 per cent to forgo that right.

As they're now the only bidder, that means there won't now be a second planting or rotation.

It's no joy watching grower investors' options being reduced but at least such proposals as Gunns offer a future to the schemes, and maybe even worthwhile returns.