AFTER two months' suspension from the stock exchange, Tasmanian forestry company Gunns is believed to have won the backing of key institutional shareholders for a $400 million-plus recapitalisation to pay down debt, realise the value of its plantation estate and develop its controversial pulp mill.

One fund manager who is substantial in the stock, speaking off the record, said Gunns' main problem had been its stretched balance sheet and there was ''huge value in the company'' not reflected in its share price.

Gunns was suspended from trade at 16¢ on March 9 after New Zealand billionaire Richard Chandler withdrew suddenly from a planned $150 million recapitalisation. The company reported net tangible asset backing of 88¢ a share at the end of 2011.

The fund manager said Gunns could not realise the value of its assets, including 150,000 hectares of plantations, with its bankers at the door. Gunns, which now has a market capitalisation of $136 million, owes more than $550 million.

Institutional shareholders are believed to accept Gunns' capital raising is needed, whether or not it leads to the successful development of the $2.3 billion pulp mill at Bell Bay in the Tamar Valley. But if Gunns pulls out of the project, it will be forced to write off capital costs of $232 million as at December 31.

Gunns chief executive Greg L'Estrange, whose contract expires in July, was overseas meeting investors this week and would not comment on the capital raising but has previously told BusinessDay the Bell Bay pulp mill was in the top quartile of cost-competitiveness worldwide.

''It's competitive at [an exchange rate of] $1.05,'' he said. ''It's the only manufacturing project in Australia, let alone Tasmania.''

The fund manager said if Mr L'Estrange was able to finalise the recapitalisation he had ''done what's required. He's done an enormous job.''