Tasmanian timber company Gunns says potential investor Richard Chandler Corporation has pulled out of its bid to buy a 40 per cent stake in the company.

The withdrawal was announced in a statement to the stock exchange this morning.

Gunns’ shareholders were due to vote next month on the Singapore-based company’s $150 million offer.

The deal was widely seen to be crucial for the company to shore up plans for its Tamar Valley pulp mill project.

Gunns’ CEO Greg L’Strange says the company could sell its stake in the project.

“We’ve been trying to work through this process from the point of view of doing it within a framework of governance and compliance and plantation base but if we have an offer from someone who doesn’t want to have all of those parts of their investment criteria of course we’ll look at it, we’ll look at it,” he said.

“This facility will be built, it will be built on the Tamar Valley site, it will go ahead.

“Whether Gunns will be part of that, or not, is not something I can guarantee.”

Shadforths Investment Group’s Matthew Torenius says the Chandler Corporation withdrawal is a major setback for Gunns.

“The prospect of a cornerstone was going to be a positive in terms of Gunns pushing forward with the pulp mill,” he said.

“This really does open the question now as to how Gunns is going to repay its debt and whether there are any other investors that may be willing to put up funds.

“In terms of their ability to raise funds, I would say they are running out of options.”

Gunns’ shares have been placed in a trading halt for two days.

The Tasmanian Premier, Lara Giddings, says the withdrawal is disappointing.

“I would have hoped that with the strength of the majority of the State Parliament being behind the pulp mill, and Gunns the company, that they might have had some confidence to be able to go ahead.”

Ms Giddings says the corporation had not signalled an intention to pull out when she met representatives late last month.