The Phaunos Timber story hasn’t been a happy one. As I mentioned before in this blog, on paper investing for the long term in forestry could be a great idea – see blog mention here.
Unfortunately, it hasn’t quite worked out as planned at Phaunos (which is I think something of an understatement) and a few weeks ago news came that the current fund manager Stafford Capital Partners intends to resign as manager with effect from the company’s General Meeting in August 2017. The manager has a six-month notice period during which it will ‘focus on the ongoing management of the Company’s assets, the appointment of a sales agent to manage the realisation of assets, and the provision of fund information as part of an orderly hand over to a new manager’.
We’ve also learnt that the existing board are going to resign which means that presumably a new board will be brought in to help manage the slow wind down of the assets – helped along by Stafford as they carefully manage their way out of this sticky mandate. No date has bene set for the EGM in August but presumably, all attention on this £189m fund will be focused on its 23% stake in a business called Matariki in New Zealand which, I imagine, will be key to the success of the liquidation. This one asset currently accounts for 46% of NAV and is jointly owned by US-listed forester Rayonier, which according to Numis analysts “repaid Matariki’s outstanding NZ$235m credit facility in a debt for equity swap in 2016. Phaunos’ other assets are in Brazil (21% of NAV), Uruguay (16%), and the USA (5%), with the remainder in cash.”
Those of us who’ve been around the investment trust space for many moons will know that orderly wind downs (even more so disorderly wind downs) don’t have a great track record. The usual form is that the ‘key’ valuable asset turns out to be less valuable than first thought. Also, the discovery process tends to incur excessive professional fees which eat into the final return. Suffice to say that the cynics amongst us would usually be extremely surprised to see the current 9% discount to net asset value remain after the disposal process. Arguably the discount could be higher?
But having had a few illuminating chats with various parties closely involved in this rather sad affair I think there’s a fair chance that my cynicism may this time be misplaced. Some investors believe that Matairiki might actually be undervalued and that it’s not only possible investors will get the NAV – they might even see an uplift. If that is the case it’ll be a turn up for the books and might make Phaunos a contrarian idea.