Morgan Stanley, Shinhan to pay Nkr 4.3bn for Korean paper

Morgan Stanley Private Equity Asia and the private equity arm of Korea's second largest financial services group, Shinhan Private Equity, have agreed to acquire two loss-making mills from Norwegian newsprint maker Norske Skog.

Norwegian newsprint producer Norske Skog has agreed to sell two mills in Korea to Morgan Stanley Private Equity Asia and Korean firm Shinhan Private Equity for Nkr 4.3 billion ($859 million; €553 million). The deal includes Nkr 3.2 billion in cash and the assumption of debt, of which Nkr 650 million is an inter-company loan to be repaid to Norske Skog from its Korean subsidiary on closing.

In the first quarter of 2008, the mills had operating revenues of Nkr 845 million, but posted a loss of Nkr 625 million. Norske Skog said in a statement that the sale will reduce its net debt by 25 percent, and afford the company more “financial flexibility” in the restructuring process. The deal is expected to close in late July or early August.

Paper mills are not uncommon investments for private equity firms: this May Blue Wolf Capital Management and Atlas Holdings acquired a Nova Scotia pulp mill for an undisclosed amount, and last July KPS Capital Partners made a 2x return on the sale of Blue Ridge Paper Products for $338 million.

Shinhan Financial Group is Korea’s second largest financial services group. Its private equity division, established in 2004, was the first local private equity firm in Korea.

Morgan Stanley Private Equity Asia has been revamping its business this year. The division announced yesterday that Yoshihiko Shigenari, currently co-head of investment banking in for Morgan Stanley Japan Securities, will take over as head of the private equity team in Japan on 1 July. The firm also established an India presence this May.