Funds buy Great Southern land

Dow Jones | 28 January 2011

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by Edward Welsch


ALBERTA'S $70 billion pension fund has paid $415 million for more than 1500 square miles of forest land in Australia.

Alberta Investment Management Corp, which oversees the pension, endowment and government rainy-day funds for the energy-rich Canadian province, teamed up with an Australian and New Zealand forestry sector fund to buy the properties from privately owned Great Southern Plantations.

It is the largest forestry deal in Australia's history, the pension fund, also known as AIMCo, said.

AIMCo bought the assets in receivership. Great Southern Plantations, which leases forest land spread across six Australian states to lumber and pulp producers, fell into bankruptcy in May 2009, during the global financial crisis.

"The reason that this is such an attractive deal, is that obviously when you buy something out of receivership and you pay cash...that means you can buy at a steep discount -- we figure somewhere around 40 per cent," AIMCo chief executive Leo de Bever said during an interview in Calgary, Alberta.

Mr De Bever said the deal had received all the necessary approvals from Australian regulators.

"The competition for this was not great because not a lot of people have the long horizon and the amount of cash that you need to make this work," Mr De Bever said.

Because Australia has to import forestry products for pulp and lumber, the government created tax incentives during the '90s that encouraged investment in the sector.

"People overpaid, paid too much for commissions, levered up to 100 per cent, and the next thing you know the 2008 (financial crisis) rolls around and the whole thing collapses," Mr De Bever said.

AIMCo and its partner, the Australia New Zealand Forest Fund, will receive rental revenue from the forestry companies still operating on the timberland. It also is free to sell the land to other buyers where timber companies have defaulted.

Over time, AIMCo expects the land will evolve into a mix of timber plantations and agricultural land.

Mr De Bever said he believes the deal will provide stable, real returns for the 26 Alberta pension, endowment and government funds AIMCo manages.

Australia's timberland is primarily eucalyptus, which grows more than twice as fast as pine in North America and is ideally suited to create pulp used for paper and packaging material.

AIMCo tends to favor investments in resource economies such as in Australia and Latin America. Last year, it bought a toll road in Chile for $850 million, and in 2009 provided $C220 million in funding for agricultural product maker Viterra to take over an Australian competitor.

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