Struggling Norwegian newsprint maker Norske Skog sells two Korean paper mills to PE funds

Struggling Norwegian newsprint maker Norske Skog has agreed to sell two Korean paper mills to private equity funds, in a transaction valued at Nkr4.3 billion ($830 million).

The mills on sale are the Jeonju mill, with a capacity of 825,000 tonnes of newsprint a year, and the Cheongwon mill with a 190,000 tonne capacity. The transaction is priced at $820 per tonne of production capacity, and is said to be higher than what some analysts predicted.

The sale takes away a significant part of Norske Skog's debt saddle, and will allow its management some breathing space to look at areas such as profitability and help them reschedule maturing debts. In a statement, Christian Rynning-Tonnesen, chief executive, said the sale would give the company more financial flexibility, and provide an improved basis for the further work to restructure the group.

Norske Skog has Nkr8 billion of debt maturing in 2010-11.

The transaction is expected to be completed by August. As part of the deal, Morgan Stanley Private Equity Asia and Shinhan Private Equity of Korea will pay Norske Skog Nkr3.2 billion ($620 million) in cash for the two mills, and will take on liabilities including the repayment of a $130 million inter-company loan that is to be repaid to Norske Skog from Norske Skog Korea Co Ltd. at closing.

Norske Skog shaes had lost three quarters of their value over the past year, with the company struggling with losses, and fuelling talk of it becoming a takeover target. Post the announcement of the sale, its shares went up by a quarter.