Shares in Phaunos Timber Fund tumbled 22% to an all-time low
after the forestry investor, revealing "material uncertainty" over its cash
position, unveiled an emergency fund raise.
The London-listed fund, which has timber investments from
Brazil to New Zealand, said it was planning an "equity injection" through the sale
of 5% of its issued share capital, equivalent to about $20m, to resolve funding
difficulties posed by a potential demand for cash at one of its US investments,
and by the downturn in Chinese lumber demand.
New Zealand's Matariki, in which Phaunos owns a 35% stake –
and which, at 169,000 hectares, is the country's third largest forestry estate –
may suspend dividends "as a result of reduced timber prices in China", a major
Chinese lumber imports, largely a reflection of construction
sector buoyancy, actually recovered strongly in the April-to-June period after
a poor first quarter, when they fell 16% by volume, according to Wood Resources
However, with "much uncertainty" over Chinese economic
prospects, "it is not likely that we will see the same bump in wood imports in
the third quarter as was the seen in the second quarter", Wood Resources
"Rather, the short-term forecast is for a flat line, or even
decline in log and lumber volumes landed at Chinese ports in the third quarter."
Phaunos said that the headwinds had created "material uncertainty
over the immediate liquidity requirements of the company and its cash position.
"Without action, the company may be unable to pay its
liabilities as they fall due within the next three-to-six months," a key test
of a company's viability.
The group added that, having held meetings with
shareholders, it believed that the fund-raise would be "successful", and was
likely to prove a "one-off event".
Nonetheless, it said that it was in "advanced" talks over
raising debt as an alternative way of raising cash, with the sale of one of its
investments being investigated too.
The fund raise was poorly received by investors, who sent
Phaunos shares tumbling 22% to a record low of $0.33 in morning deals in
"There is clearly considerable uncertainty at the company
and as such we move our recommendation [on Phaunos shares] to 'hold' whilst we
await further information," said Edward Hugo at broker VSA Capital, which had
previously had a "buy" recommendation on the stock, with a target price of
The shares are now trading at 42% of the fund's published
net asset value, of $0.78 per share as of the end of last year.