Lao forest sold to Aust-based fund

THE LAO Government has sold a majority stake in its State forest to the Australia-based New Forests, a leading global institutional investor  specialising in timberland, for an undisclosed amount.
New Forests manages committed capital of more than AUD3.6 billion globally from pension and superannuation funds and other institutional investors invested in sustainable forests across Asia Pacific.
In its latest joint venture in Laos, New Forests holds a stake of 85% in what is known as Mekong Timber Plantations, the Government retaining a residual stake of 15% in the plantation estate.
Mekong Timber Plantations will manage 22,000 hectares of leased area, mainly in Bolikhamxay and Khammouane provinces.

The acquisition is the third and last by the manager’s Tropical Asia Forest Fund (TAFF), which raised US$170 million and has now invested US$110 million. The balance of the fund will be ploughed into existing investments in Malaysia and Indonesia.
The fund is the first such institutional entity dedicated wholly to sustainable forestry in the Southeast Asia region, and demonstrates the viability of investing in these markets in emerging economies in the region, the company says.
“Our Lao plantation will be cash-flow positive in two to three years,” says New Forests Chief Executive, David Brand.  The plantation of eucalyptus trees was first cultivated in the 1990s. and the crop is now largely mature.
By comparison, TAFF plantations in Malaysia and Indonesia are still cash-flow negative and will require ongoing capital investment for a number of years.
Brand says the fund is replanting in Malaysia with high quality timber which will take 14 years to mature. TAFF has equity interests in Acacia Forest Industries Sdn Bhd of Sabah.
In Indonesia, where it has an interest in PT Hutan Ketapang Industri of West Kalimantan, New Forests’ plan is to grow 30,000 hectares of world-scale rubber plantation. TAFF so far has planted 14,000 hectares.
The Managing Director for New Forests Asia, Geoffrey Seeto, comments: “Southeast Asia is a new market for forestry investors, but it is at the centre of rising Asian demand for responsibly-produced, sustained and certified timber.”
He says the purchase further supports TAFF’s investment thesis of acquiring significant interests in plantation timber companies and investing to transition these assets toward higher-value end markets.
The acquisition underlines the emergence of interest among institutional investors in Asian timberland buoyed by the increasing preference for sustainable timberland.
Increasingly, institutional investors, such as global pension funds and sovereign wealth funds, are faced with the issue of “decarbonising” their investments in response to the growing focus on climate change.
Long-term, they are looking more towards sustainable investments.
The economics of investing in forestry have improved, with research showing that advanced manufacturing technology is transforming the traditional usage of wood. Today, it has a role in the production of cellular-based materials for the manufacture of such items as rayon, used in clothing or baby diaper filling.
The TAFF story is one that also shows where institutional investment can respond to the opportunity to transition the region’s forest sector into responsible and sustainable production, according to New Forests.
The company has established a dedicated, local team to develop and manage investment opportunities. Today, the TAFF team includes six investment professionals based in Singapore, with expertise across private equity, forestry investment, forest resource management, and environmental and social management.
Brand says that, since TAFF was launched, interest in sustainable investments has grown dramatically. “We believe the TAFF portfolio will demonstrate the ability to generate appropriate risk-adjusted returns from forestry in Southeast Asia.” Elsewhere, New Forests’ biggest presence in the forestry sector is in Australia and New Zealand, where it is a key exporter of wood-based products.
New Forests manages some 780,000 hectares of land and plantation valued at more than AUD 2.5 billion in Australia and New Zealand – the bulk of which is located on the east coast of Australia.
It accounts for 40% of hardwood chip exports from Australia, making it the largest forestry investor in the country. Brand says New Forests will generate revenue totalling AUD600 million this year.
“Our eucalyptus wood chip is almost entirely sold out to China to the end of 2017,” he says, adding that the soft Australian dollar is making the company more competitive because its markets are priced in US dollars.”
A whole variety of cellular-based markets is growing strongly, in line with the rise of Chinese middle-class demand for products ranging from packaging, tissues and baby diaper filling, to rayon for clothing and so on, he explains.
“We also export both hard wood and soft wood logs to China for the manufacture of furniture, plywood, and concrete formwork used in construction.”
New Forests sells logs to its domestic sawmills in Australia and New Zealand to produce structural lumber for house building.
The assets are held in its Australian New Zealand Forestry Fund series.  Its latest fund, ANZFF3, launched late last year, has a mandate which allows for investment in processing or infrastructure facilities, such as sawmills, ports, and bio-energy facilities.
“We have done a lot of work in terms of being able to quantify carbon storage in our forest stocks in the forest, and how they create a net carbon balance for our investors,” says Brand.
“Many of our investors are trying to quantify total greenhouse gas emissions associated with their portfolios. Forestry assets can help contribute positively to that work.”
As well as decarbonising investment portfolios, Brand says forestry plays a part in the emerging bio-economy.
New Forests, founded in 2005, launched its first fund, known as ANZFF1, in 2010, and has since raised a total of AUD 1.85 billion for its ANZFF series — entirely from global defined benefit pension funds.
Its funds have a term of 10 to 16 years. The manager has the option of extending after Year 10 until Year 16, when the vehicles are liquidated.      
https://www.newforests.com.au/