Sappi sells Jiangxi stake for $42m
PAPER and pulp company Sappi has concluded an agreement to sell its entire 34% shareholding in the Chinese Jiangxi Chenming Paper Company for $41.58m, Sappi said on Wednesday.
Following eight years of "information exchange and learning" in China, the company is selling its stake to the Shandong Chenming Paper Holding Company as part of its strategic focus on high growth investments, disposal of noncore assets and debt reduction.
In June, Sappi raised $700m via a bond offering, saying it would use the funds to roll over existing debt. The company said at the time that the deal would cut its debt costs by $27m a year.
Last week, Sappi announced a widening diluted headline loss per share for the third quarter to June of $0.20 from a loss of $0.13 a year before. The company’s operating profit, excluding special items, remained flat at $60m, but once-off charges of $89m contributed to a $68m loss for the period from the previous year’s June quarter loss of $3m.
The flat performance was attributed largely to difficult trading conditions in Europe.
In 2004, Sappi became part of a joint venture created by Shandong Chenming Paper Holding Company and other partners to explore fine paper opportunities in China, but the company has since had a change of strategic focus towards higher growth investments.
CEO Ralph Boettger said that Sappi had been a partner in the venture for a number of years as a minority stakeholder, with the intention to learn about the Chinese market, manufacturing and way of doing business. "There has been a lot of information exchange and a lot of learning."
But Sappi was now shifting its strategy to concentrate on higher growth investments to maximise its shareholder return, and would "use the funds to reduce debt and to invest elsewhere".
The implementation of the deal is subject to Chinese regulatory approvals, but Sappi was confident this would be achieved before the company’s financial year end on September 30.
Mr Boettger said Sappi would remain active in China, particularly through its release paper and chemical cellulose businesses.