Saddled with huge debt at a time of world financial crisis, devoid of new MIS products to raise new capital, and faced with the toughest market conditions for asset sales, Timbercorp is now facing insolvency.
In February Rural Press reported that the future of a number of timber MIS companies was shrouded with uncertainty as they looked to sell more assets to stay afloat.
Now Timbercorp is right up against a financial deadline, needing to find a $20.5 million interest and principal loan repayment before next Friday.
According to the company, unless it is able to "reach agreement with its financiers to restructure the existing debt facilities, or an alternative funding or restructure plan is implemented before 1 May 2009, there is significant uncertainty regarding the ability of the company to continue as a going concern".
Lonsecs' head of agribusiness, Jim Blackburn, has studied the timber MIS sector in detail and said that the outcome of not meeting debt obligations would be determined by the finance providers (banks) and what security they have obtained from Timbercorp for these loans.
"At the moment Timbercorp have a pipeline of assets they are looking to sell to fund debt repayments, however if this does not eventuate, the finance providers have a number of options to consider including extension provisions or closing out on the loan security," he said.
Mr Blackburn said one advantage for Timbercorp, if there was one, was the current limitations on the supply of high quality, high rainfall forestry land.
"The Timbercorp forestry assets contain some very productive land and would provide signficant immediate economies of scale to buyers with the resources to negotiate a deal," he said.
About 500,000 hectares of blue gums have been planted across Southern Australia, with the majority being planted as part of a forestry MIS, with Timbercorp and Great Southern the two of the largest five players.
Great Southern is reported to be the largest landholder in Australia when its forestry, horticulture and cattle land assets are combined.
Mr Blackburn said he had examined its business in depth and as it stood Lonsec was satisfied with the quantum of assets available for sale relative to the debt repayment requirements.
Overall, Mr Blackburn said the MIS model these two main companies were founded on has needed to change.
"We are seeing the unwinding and restructure of an MIS model which is unsustainable.
"Under the structure set up 10 years ago, these companies were just too reliant on upfront revenue from MIS sales and did not generate enough revenue from their ongoing operations."
Another significant factor which has not helped the sector, according to Mr Blackburn, has been the many and ongoing changes to tax laws affecting MIS.
A spokesperson for the assistant treasurer said the previous Government introduced specific tax deductions, in legislation, for forestry MIS and there was no proposal to change this at this time.
"In line with the Government's election commitment, a review has been conducted into non-forestry MIS and the Government understands certain agricultural group's concerns with non-forestry MIS. This review will be released shortly."
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