On its share price (10.5 cents), Gunns Ltd is now worth about $90 million. They were in debt as of the last annual financial statement to the tune of $816 million, with ANZ its largest creditor.
Gunns can realistically only pay off $350 million of this if all their asset sales materialise in time for their end of the month meeting with the bank. The remaining $200 million they wish to roll over until the end of the year. It is unclear who owns the balance of this debt of about $266 million.
Short selling: The Gunns share price graph shows what’s happening. It hits a platform for a few days, while the big boys jockey for position and sell shares, many of which they borrow.
The price than plummets sharply and the big boys buy shares back again and replace all those shares they borrowed and start again. On 2 million shares they can pocket $40 000 profit on a 1 cent drop in price and double that for a 2 cent drop.
Until the price hits rock bottom and some rather optimistic buyer steps in when the saleable assets exceed the share value and buys up the whole company for a song, or when the liquidators are called in, then this game will continue.
This will continue the downward trend for as long as the banks think their capital is safe and they can recoup their sales before the receiver steps in and they are left stranded. It’s both a matter of timing and value. They know about the meeting with the ANZ at the end of the month and they will probably only stop shorting shortly before that to wait and see. By that time they will have taken whatever they can out of the market and the lower the price, the less they have to lose. Maybe some will offload the remainder to someone who may be prepared to take the risk as low as 4 cents and wants to try to capitalise on Gunns assets after the ANZ has taken what they can.
Private Equity Funds (PEF) and Hedge Funds (HF): The chief financial editor of the Australian Financial Review – Matthew Drummond - was interviewed on Tuesday last week about how Private Equity Funds (PEF) and Hedge Funds (HF) predate on vulnerable publicly-listed companies.
On ABC-RN Breakfast…
In a short but revealing interview Mr Drummond gave listeners a snap shot into this greedy New World.
A form of Piracy on the corporate high seas that is happening to over-extended businesses that have large debits owing to conventional lending institutions [commercial banks]
According to Mr Drummond PEF and HF are taking up the Bank debts that these insolvent Companies owe (i.e. their unpaid loans) and then begin to dictate to the Company about future asset sales or divestments, liquidation, etc.
These are Debt to Equity Swap, or as Drummond puts it, Loan to Own transactions that are secretly between the Banks and these entities; PEFs and HFs are speculative entities that operate in ‘private’.
Some very big companies & conglomerates are going down this route particularly as global finance is being reviewed and as the in-trouble European banks are clawing back their loans in far-flung places like Australia, NZ and parts of Asia to survive.
The PEFs and HFs are going direct to these in-trouble commercial Banks and offering cash to buy these bad loans up and these Companies don’t even know it has happened until the letters come in!
I naturally thought of the Big Tasmanian - Gunns Ltd with a share price of 10.5 cents and a horrendous debt to equity ratio. You can listen to the 5 minute interview on line, and form your own view. [And thank you to Barnaby Drake and John Lawrence.]
• First published: 2012-01-09 02:13 AM
• Anne, from Pulp the Mill.
Tomorrow – Thursday 12th Jan – PtM returns to the Magistrate’s Court to hear the decision re permits validity from the December 22nd hearing. If you’re in a position to be there please consider coming along in support. The time is believed to be 2.15pm – but it would be wise to check the website after 5pm today when the times are posted for the following day. http://www.magistratescourt.tas.gov.au/lists/launceston_criminal_and_general
At 2.30pm today Gunns’ shares were trading at 9.6 cents!
Please also consider writing (again) to the ANZ Bank. This bank is now even more crucial to Gunns’ future, & if the bank refuses to extend loans then Gunns are stuffed. Pressure on the ANZ is therefore absolutely critical.
I write to express my concern that the ANZ Bank continues to support Gunns Limited, despite the Tasmanian timber company’s significant exposure to debt, and the requirement to repay reported loans of more than $500 million before 30th June 2012.
Despite the ANZ’s public announcement three years ago that the bank would not provide funding for Gunns’ pulp mill project, the decision to follow this with the provision of an additional $200 million loan to Gunns sends a contradictory message, both to the financial markets and the Tasmanian community.
Gunns now relies completely on the assumption the pulp mill will be built. Clearly this means the pulp mill is Gunns’ core business, so it is not unreasonable to conclude any loans made by the ANZ to Gunns effectively signals the bank’s approval for this deeply controversial project.
Quite apart from serious environmental flaws in Gunns’ pulp mill project, and the company’s failure to consider - or even acknowledge - the negative economic effects from the mill on many successful existing Tamar Valley businesses, we consider the ANZ Bank risks seriously contravening the Equator Principles, to which the Bank proudly states it is a signatory.
Gunns is currently operating what we believe is a sham process of “community consultation”. It has engaged a “Community Liaison Committee” that it admits: ‘aims to represent the local community with an interest in the pulp mill project.’ [Examiner 26/11/2011]. Gunns’ so called ‘community consultation’ has been carefully engineered to exclude the majority of dissenting community voices.
We believe Gunns will never receive a social licence to build or operate a pulp mill in the Tamar Valley. Any financial institution that chooses to facilitate the mill’s construction will be faced with an ongoing national campaign of community opposition, resulting in serious damage to its reputation globally.
• Meanwhile ... this is the article in full that was pulled within hours of a complaint being made as to content yesterday. TT has been told another complaint has prompted the editor of Bus Review Aus to seek an interview so an article offering the view from t’other side can be written
Gunns Ltd. - Redefining Sustainability
Gunns Limited, one of Australia’s longest-standing businesses, is greening the forestry industry with a $2.3 billion investment in the future
Few companies have the resilience to survive a major overhaul in market focus, but Gunns Limited is doing just that. The Tasmania-based company is Australia’s largest supplier of hardwood and softwood forestry products, and is currently undergoing a radical transition period towards a more sustainable and secure business model.
As one of Australia’s longest standing companies, Gunns has forged a commitment to benefit not only its clients, but also its local community. This has been a strategic response to a long-running dispute over Gunns’ history of logging native forests, and a campaign by environment groups to stop them.
“Gunns has a long history in Tasmania, with over 140 years of continuous operation in the state,” says Managing Director Greg L’Estrange. “If we are to keep that history going, we have to do things differently. That means getting out of native forest products and into certified plantation forest products, and value-adding pulp production. That’s what our customers want, our communities want and where the market is headed.”
The company has increased its plantations from 90,000 hectares in 2003 to over 300,000 hectares in operation today, providing jobs and protecting Australia’s diminishing native growth forests.
Transitioning to the Future
Conflict over the using biodiverse, native forests for woodchips in Australia received global attention in the last decade, prompting Gunns to take the lead in innovating a new, sustainable model of plantation-based forestry products to minimise environmental impact. “We are transitioning out of a long, proud history in forestry towards a more sustainable, low-impact model of providing our products and services,” says L’Estrange.
Sustainability comes both environmentally and economically in the firm’s transition, as sourcing their own supply-chain will help elevate their business out of the volatile woodchip market – a major limiting factor for the global industry. A crucial aspect of this closed-loop model will be the Bell Bay Pulp Mill, under construction in northern Tasmania.
The Bell Bay Pulp Mill Project
The Bell Bay Pulp Mill will be among the world’s greenest, with state-of-the-art technology and more than $2.3 billion in company investments. Once operational, the plant will have a production capacity of more than 1.3 million tons, and will create jobs for over 3,000 people.
One vital aspect of the project is the plant’s bio-refinery, which will produce an estimated 200 MW of green energy. The complex will only need about half that to power all of its operations, leaving up to 100 MW of renewable, low carbon energy to be fed back into the neighbouring power grids – greater than the combined power usage of the nearby Launceston area. “80 MW supports about 80,000 people in the community free of contribution from the public purse, as opposed to tax funded power projects in recent years.”
Planning for the project has been going on for over five years, ensuring that Gunns has an elite team of experienced professionals and experts advising the construction process. The project director assigned to see the project through to operational status, for example, has already completed five similar international pulp mill projects. Though the import of talent for this final phase has been needed, Gunns is confident they will become increasingly self-sufficient in their labour requirements.
Heads Above the Rest
This substantial investment will place Gunns in the top tier of global competitors for forestry products, and uniquely situate the company to serve a growing Asian market. “Our facility is situated on a deep sea port, so we are loading directly onto Chinese vessels bound for the Asian markets,” says L’Estrange. This shipping access gives Gunns a significant cost-advantage over competitors in South America and other countries, with the gap only growing as various elements of the plant come online and efficiency is increased.
The company’s domestic power generation will be a secondary source of income, as well, making clean and renewable energy available for local markets. The bio-refinery will allow the plant to operate completely independent of adjacent power grids.
With a reliable and manageable supply-chain from their growing plantations, Gunns will elevate itself out of an unpredictable woodchip market that often hinders other industry leaders. They will also be able to carefully control the quality of the raw materials they work with.
Conservation land runs across much the company’s plantations, as well – for every hectare of harvest land, the company manages a hectare of reserve land, helping preserve Australia’s rich ecological legacy.
Despite the typical 10-15 year lag time in the industry from initial investment to operational status, Gunns has resources already in place to begin moving products and creating profit. Their innovative plantation-based model, commitment to sustainability, and unique location will give them a lead in a highly competitive and growing market. With this major transition, Gunns Limited has secured sustainability for the environment and its own bottom line.