The country’s first Pooled Development Fund (PDF) covering timber and forest products, Plantation TimberBank Australia (PTA), plans to raise up to $30 million from wholesale investors.
The private equity fund, one of around 120 PDFs in Australia, was formed to meet the needs of early-stage or expanding Australian small and medium-sized enterprises (SMEs). In addition to traditional timber businesses, it will also invest in companies that add value to the timber and forest products sectors, including in transport companies and furniture manufacturers.
PTA chairman Susan Carter, a former Victorian Regional Commissioner for the Australian Securities and Investments Commission, says Australia currently is heavily reliant on imports of timber and forest products to meet demand. “That demand is expected to grow strongly from between 5 to 15 per cent a year until at least 2010,” she says.
Glenn Woolley, managing director of Intrinsic Investment Management, the investment manager for PTA, says: “Apart from involvement in the sector and its strong continuing growth potential, PDFs do receive attractive tax concessions, making them the most tax efficient way to invest in SMEs in Australia.”
The tax concessions occur at two levels — the PDF and its shareholders. As a PDF, PTA’s income from investments in SMEs, both dividends and capital gain, is taxed at 15 per cent against the normal company tax rate of 30 per cent and the same as a super fund.
For shareholders, dividends received from a PDF are exempt from income tax and no capital gain tax is payable from the appreciation of PDF shares.
Woolley says: “Preliminary due diligence on a number of timber industry investments indicates an IRR of between 12-25 per cent over the long term.
“When you consider the attractive tax concessions, many investors are likely to be much better off making private equity investments through a PDF than in their own name — they pay much less tax and get to keep more of the investment return.”
Intrinsic has appointed prominent Mt Gambier-based Plantation Timbers Group and its managing director, Peter Collins, as a specialist adviser.
