Cathay Forest to Sell Controlling Interest in Russian Operations

Cathay Forest Products Corp., Richmond Hill, Ont., Canada, reports that the Russia Forest Products Group (RFP), a Russian-based forestry company, will acquire a controlling interest in its DalEuroLes LLC operations in Far East Russia. According to the agreement, RFP and Cathay Forest will establish a special purpose entity to which Cathay Forest will transfer its equity interest and other assets it holds in DalEuroLes.

In exchange for a controlling position of the special purpose entity, RFP will pay Cathay Forest $13 million in cash. RFP then expects to acquire the remaining shares of DalEuroLes it does not own and will provide sufficient funds to DalEuroLes to continue operations and to expand its current harvesting operations.

After completing the transactions, Cathay Forest's equity interest in DalEuroLes will be decreased from 51% to approximately 30%. Cathay Forest will also have the right to nominate two of the five directors of the special purpose entity.

The transactions, subject to approval of Cathay Forest's shareholders of other regulatory approvals, are expected to be completed by June 30.

Cathay Forest manages some 1 million hectares of standing timber properties and fast-growth, high-yield poplar plantations in China and Russia. The company's customer base includes the domestic Chinese pulp and paper industry and other wood products customers in the Russian and Japanese market.

RFP is one of the largest integrated forestry groups in Russia and Asia-Pacific region by timberlands area with 6.4 million hectares of standing timber and annual harvesting volumes of over 2 million cubic meters. RFP mainly exports its wood products to China, South Korea, and Japan and is the world's largest single timber supplier to China and Japan, controlling around 10% of Russian timber export to China and around 15% of Russian timber export to Japan.

TAPPI
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