InvestmentsAug 6 2014

Timber investment trust lines up emergency share offer

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The £420m Phaunos Timber investment trust is having to resort to issuing more shares in order to stave off the prospect of it defaulting on its debt.

The investment trust, which invests in timber and forestry assets, said “a number of changed circumstances” had led to “material uncertainty over the immediate liquidity requirements of the company”.

The board warned that it “may be unable to pay its liabilities as they fall due within the next three to six months”.

In a note on the stock exchange, the board therefore proposed issuing new shares in the trust, equivalent to approximately five per cent of the current issued share capital.

Such a share placing would dilute the value of current investors’ holdings but the board claimed it would provide enough cash to keep the investment trust afloat.

The board said it had met with some investors already and claimed raising the funds through an issue of equity would be successful, especially if it is combined with a cost-cutting programme on the trust.

But the board has also lined up plans in case the share placing does not succeed, including talking to other debt providers about the possibility of restructuring its obligations.

The managers have also looked into possibly selling off one of the trust’s assets.

The board only recently appointed Stafford Timberland to manage the trust after the firm recommended a series of sweeping changes on the trust having been brought in to review its operations.

But the trust has faced headwinds, including a suspension of dividends from its biggest holding, Mataraki Forestry, which makes up 33 per cent of the trust.

The trust is currently trading on a discount to its net asset value of nearly 55 per cent, which has widened significantly from around 30 per cent at the start of the year.