United Fiber (UFS) has announced that it has “put on hold” its plans to build a new pulp mill in South Kalimantan in Indonesia. The plan had been severely criticised by NGOs over several years and the company was mired in controversy – as this profile of the company, that I wrote three years ago, reveals.
The good news is that United Fiber has decided to drop its pulp mill plans. The bad news is that “a US investment advisory firm, Falcon Capital Management, has agreed to purchase a 51.5% stake in UFS for $178 million in cash, chiefly by acquiring new shares to be issued by UFS.” This is not the first time that UFS has issued shares to raise money, see this extract from my 2007 report (information sources available here):
UFS has a US$159 million equity line of credit agreement with Cornell Capital Partners Offshore under which Cornell is repaid in shares. According to Philip Ho, Cornell’s managing director for global capital markets, Cornell brokered its first deal of this type with UFS in 2004. To get the cash, UFS issues new shares to Cornell in tranches of not more than US$5 million over the next five years to a total value of US$165 million. UFS also has a US$50 million loan note agreement with Cornell.
Since setting up the deal with Cornell, UFS has issued millions of new shares. In January 2006, for example, UFS issued 22.5 million new shares to Tektronix in January. UFS had previously borrowed the shares from Tektronix to repay part of a loan to Cornell. In April 2006, UFS issued 48.99 million new shares at S$0.10 each to Tektronix in exchange for shares it borrowed earlier. In September 2006, UFS issued another 61.49 million new shares in order to return shares that it borrowed from Tektronix, again to repay a loan from Cornell.
A colleague sent the following report from RISI’s website about the latest news on Uniter Fiber:
SINGAPORE, Sept. 10, 2010 (RISI) – United Fiber System (UFS) has put on hold a long-standing plan to build a greenfield pulp mill in South Kalimantan, Indonesia, due to financing problems.
First floated in 1994, the $1 billion project would have comprised building a 600,000 tonne/yr bleached hardwood kraft (BHK) pulp mill, a wastewater treatment facility and a chemical plant in the firm’s 268,515 ha forest concession in South Kalimantan. But the scheme has not progressed in the past two years.
UFS signed a deal with China MCC20 Construction, a subsidiary of China Metallurgical Group, in 2008, which would have enabled the project to move ahead.
Under the $863 million agreement, China MCC20 Construction was to be responsible for the design, procurement and supply of all the equipment, and for civil works and installation, as well as providing supplier’s credit for the project.
However, a UFS spokesman said the deal has expired and the Chinese firm has withdrawn from the scheme.
The Singapore-listed company posted a net loss of $55 million last year, despite a 23% improvement in net sales to $140 million from 2008.
The loss was attributed to a decline in its forest asset value, which Pöyry Forest Industry slashed from $189 million to $134 million.
UFS has argued that the Pöyry valuation was too conservative; it reckons the forest assets are worth $182 million.
Pöyry’s valuation covers UFS’s 36,012 ha of acacia plantations ($91 million) and 37,833 ha of utilizable natural forest, comprising mixed tropical hardwoods ($43 million).
UFS had already reported a net loss of $73 million in 2008, also due to a devaluation of its forest assets.
The firm’s auditors Ernst & Young warned in UFS’s 2009 annual report that the company’s current liabilities may exceed current assets if certain advances totaling more than $28 million are not recoverable, although the firm does have undrawn facilities of almost $35 million.
In addition, the Ernst & Young report dated March 30 said that UFS has loans and borrowings totaling over $21 million due within the next 12 months, the refinancing of which it is negotiating with bankers. The auditors said its ability to continue as a going concern depends on the extension of its financing facilities.
Investor steps forward
UFS’s future is looking somewhat brighter now, though. A US investment advisory firm, Falcon Capital Management, has agreed to purchase a 51.5% stake in UFS for $178 million in cash, chiefly by acquiring new shares to be issued by UFS.
The deal is subject to approval from the Singapore-based company’s shareholders and the relevant authorities. The UFS spokesman said it is expected to be wrapped up at the end of November.
Some 84.5% of the firm is currently in public hands. UFS is active in the property development sector in Singapore, through subsidiary Poh Lian, in addition to its Indonesian forestry and forest products assets.
It is not clear whether the new majority shareholder will want to take the pulp project off the backburner. The UFS spokesman did say that the fund management company has experience in the forestry industry, though.
UFS eyes chip plant buy
The abovementioned agreement includes a deal to purchase a woodchip mill in East Kalimantan for $65 million, to double UFS’s chip production capacity.
The firm would acquire the operation, Kutai Chip Mill, which sells woodchips for pulp production, from Masba Holdings, a company incorporated in the British Virgin Islands, with owners in Dubai.
As a package deal, this acquisition is also subject to the all-clear from UFS’s shareholders and the appropriate authorities.
Kutai Chip Mill began operations in December 2008 and has an annual capacity of 700,000 bone dry metric tons (bdmt).
UFS already has a 700,000 bdmt/yr woodchip plant in Pulau Laut, an island off the coast of South Kalimantan. This facility’s chips are sold to pulp producers in Indonesia, China, South Korea, Taiwan and the Philippines.