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Gunns revalues assets
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Gunns has said that it has been forced to revalue its forestry assets because of the ailing woodchip market. The revaluing of assets includes its 200,000-hectare Tasmanian forest estate. Source: ABC News, The Australian
The company has told the Australian Securities Exchange the declining woodchip market has forced a review of the value of the asset. The review is still underway and Gunns has not said how long it will take. It is unclear what sort of impact it will have on the company's bottom line.
According to the ABC, this prolonged share trading halt has triggered fears it will never trade again. Gunns' shares have been suspended from trading for 117 days.
Gunns shares have been in a trading halt as the company negotiates a plan to raise about $400 million.
Financial analyst Matthew Torenius says it is bad news for shareholders.
"The capital raising was looking like being done quite quickly and has now dragged out substantially.
"You would imagine the terms of any capital raising would have worsened for existing shareholders."
The company says the woodchip market has also impacted on its capital raising efforts but confidential negotiations are continuing with "various potential investors".
Pulp and paper analyst Robert Eastment says there is currently an over supply of woodchips. "The greatest competition that Gunns has is coming from Australia, not from overseas," he said.
"Extensive plantations have been developed in Victoria, Western Australia and even Tasmania. Those plantations are being harvested and they are actually selling directly across Gunns, into the same market as Gunns.
Some analysts said the flagged write-downs were not a huge surprise given the prices, and the main issue was whether Gunns could get the capital raising done successfully. Failure would raise questions about the company's lending covenants.
Morningstar head of equities research Peter Warnes said the news was negative but not necessarily terminal.
"I think a capital raising is going to be very difficult but the balance sheet should be getting better as the non-core asset program progresses and money comes in," he said. "At this point in time they have got breathing space until the end of calender year 2012 from their bankers."