Rescue hopes rise for Norske Skog

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As major Norwegian forest products firm Norske Skog faced a deadline Friday for its debt negotiations, optimism was rising at home in Norway. Investor Christen Sveaas’ takeover of the company’s largest bloc of shares, its price rise on the Oslo Stock Exchange and new support from forest owners raised hopes the company would avoid bankruptcy, while some pointed out that even a bankruptcy could allow necessary restructuring to save the company as a going concern.

Norway is covered by vast expanses of forested areas that for centuries have provided their owners with income. Now the forestry industry is threatened by severe debt problems at Norske Skog, which buys timber for paper production. Hopes were rising this week, however, that the company will survive despite facing banruptcy. PHOTO:

Sveaas’ surprise purchase was widely viewed in Norway as a vote of confidence in Norsk Skog’s future. Norwegian business newspaper Dagens Næringsliv (DN) reported this week, for example, that surgeon and investor Dr Karl Iver Hanvold was among those “gambling” that Norsk Skog will survive negotiations with creditors over heavy debt accumulated during an international expansion phase years ago. The doctor and surgeon at Norway’s national hospital in Oslo, Riskhospitalet, has boosted his holdings in the company and has now seen them rise from just NOK 0.39 per share on Monday to NOK 1.21 when the market closed on Wednesday.

“When an investor and forest owner like Sveaas chooses to invest in Norske Skog, it’s a sign that the company will survive,” Hanvold told DN. “I have full confidence in the company’s management and am convinced a solution will be found to bring Norske Skog out of its crisis.”

Sveaas (roughly pronounced “Svay-ohss”) remained mum earlier this week regarding the intentions behind his investment company Kistefos’ acquisition of 24 million Norske Skog shares. The high-profile businessman and investor in Norway smiled and waved when he got off his bicycle at Kistefos’ headquarters at the Aker Brygge complex on Oslo’s waterfront, shortly after Kistefos had alerted the market to the acquisition, but wouldn’t answer questions from DN, which has followed the Norske Skog drama closely. Asked what his goal is for the new investment in the company, which dramatically boosted his earlier holdings and makes Sveaas/Kistefos Norske Skog’s largest shareholder, he simply said “Vi får se” (“We’ll see,”) before he disappeared inside the door. Nor did the man who now controls 13 percent of Norske Skog reply to questions DN sent him via email.

Forest owners also try to help
The bottom line is that while Norske Skog is drowning in debt, its ongoing operations remain largely profitable. That alone has also attracted support from more Norwegian forest owners. On Thursday, DN reported that Norway’s largest forest owners’ coop, Viken Skog, was asking its roughly 10,000 members in the southeastern portion of the country to continue deliveries of timber to Norske Skog, including Norske Skog’s Saugbrug plant in Halden. A bankruptcy would more than likely snarl payments for the timber, but Viken Skog is willing to take that risk. Without shipments of timber, the profitable Halden plant, for example, would face even more trouble.

“As forest owners, you can contribute (to the future of Norske Skog) during a difficult period,” Viken Skog wrote in a message to its members on Tuesday. The coop pointed out that if Norske Skog’s plants in Halden and Skogn (farther north in Trøndelag) stop operating, Norway’s forestry industry would face “great challenges” regarding both the price of timber and costs. As one forest owner told DN, “for every plant that shuts down, we’d have to transport our timber over longer distances,” and that will affect cost, price and generate uncertainty.

Christen Sveaas (right) is a high-profile investor and philanthropist in Norway. He’s shown here with a former US ambassador to Norway at the opening of an annual art exhibit he sponsors at the old Kistefos cellulose plant he inherited and turned into a museum. PHOTO:

Others point out that Sveaas, who’s been involved with numerous company restructurings during his career, is both a “forest and finance man.” DN commentator Bård Bjerkholt wrote this week that Sveaas will hardly be content with just buying shares in Norske Skog, and is more likely to get actively involved. While his acquisition wasn’t huge because of the low share price (Bjerkholt compared it to what a home in Oslo’s middle-class Grefsen district would cost) it can give Sveaas some influence. There’s also speculation Sveaas has invested in one or more of Norske Skog’s loan instruments, giving him a seat on both sides of the negotiating table.

In contrast to the US-based Blackstone concern that sold the 24 million shares in Norske Skog that Sveaas picked up, and which also sat on both sides of the table, Sveaas has a vested interest in keeping Norske Skog afloat. As a forest owner he also needs a customer like Norske Skog for his timber, and he’s believed to have a strategy for the company that posted pre-tax profits of NOK 342 million for the first half of this year and is widely viewed as well-run.

The company is simply over-burdened by its whopping NOK 6 billion in debt that’s become unmanageable, and is held by creditors who are arguing amongst themselves. Recapitalization looms even if they agree by Friday’s deadline for refinancing around NOK 150 million of the debt. That would give Norske Skog some breathing room, but won’t end the crisis. A work-out plan remains critical, but Bjerkholt pointed out that prospects for Norske Skog’s survival aren’t any worse with Sveaas on board. Berglund