A group of Western Australian investors has started legal action against US-based KKR, calling on the private equity giant to buy them out of Indian sandalwood producer Santanol Group at fair value or else have the business wound-up.
A group of Western Australian investors has started legal action against US-based KKR, calling on the private equity giant to buy them out of Indian sandalwood producer Santanol Group at fair value or else have the business wound-up.
An application lodged with the Supreme Court of Western Australia has also called for an order setting aside two share issues that substantially increased KKR’s holding in Santanol Group.
In addition, the application seeks an order setting aside the appointment of receivers to Santanol Pty Ltd and Berg View III Pty Ltd.
These are the entities through which 21 WA investors, led by forestry veterans Tony Jack and Bob Bunning, hold their stake in the sandalwood business.
The Supreme Court action follows a falling out between the WA investors, who founded Santanol, and KKR, which is the major shareholder in the business.
Mr Jack said he was very disappointed with the actions taken by KKR against the minority shareholders.
“We have learned a bitter lesson from our experience,” Mr Jack told Business News.
McGrathNicol is currently trying to sell the equity stake held by the WA investors in the business, but in one of several unusual aspects of this commercial dispute, the insolvency firm can’t say how much is for sale.
That’s because the minority shareholders are disputing two share issues in May, which diluted their stake from 33 per cent to less than 5 per cent.
Santanol Pty Ltd and Berg View III Pty Ltd initiated the Supreme Court action.
The defendants include Alpha Santanol and Beta Santanol, which are the two main operating entities in the group.
Perth company director Jock Clough chairs these entities, while their directors include KKR’s Ed Bostock, who will join Wesfarmers in October as managing director business development.
The third and fourth defendants are Wilson Holdco and Dupree Land Holdings, which are the KKR entities that have a majority holding in the Santanol companies.
The fifth defendant is Wilson Finco, a KKR entity that was only established in May but has played a crucial role in the matter.
Its sole director is KKR’s Niraj Javeri, who until April was a director of Alpha Santanol, Beta Santanol and Dupree Land Holdings.
Soon after being established, Wilson Finco bought a three-year-old loan from Macquarie Bank to the Santanol Group companies, making it a secured creditor.
Five weeks after doing so, on July 18, it appointed McGrathNicol partners Matthew Caddy and Jason Preston as receivers to Santanol Pty Ltd and Berg View III.
It took this course of action despite also holding security over the assets of Alpha Santanol, Beta Santanol, Dupree Land Holdings and Wilson Holdco, all of which are controlled by KKR.
The actions of Wilson Finco are expected to be central to the court case.
Private WA investors established the Santanol business in 2004.
The core investors, including Messrs Bunning and Jack, along with Bruce and Charmaine Mattinson, are the same people who played a major role in blue gum grower Integrated Tree Cropping in the 1990s.
KKR became a majority shareholder in Santanol Group in 2013, when it funded the $70 million purchase of 1,750ha of sandalwood plantations managed by Elders, mostly around Kununurra.
That added to 370 hectares the private investors had already acquired or established.
The Supreme Court application is due to be heard on August 31.
KKR and McGrathNicol declined to comment.
