Newsprint and magazine paper giant Norske Skog is scrambling to restructure a massive debt that has hit €1 billion and threatens the company’s operations in Australia and New Zealand.
The Norwegian company has issued an plea to holders of senior note loans to switch to new unsecured loans that mature at later dates in a bid to strengthen its capital structure. In a statement, Norske Skog said it had encountered ‘an exceedingly more challenging operating environment in 2015 than envisaged at the beginning of the year.”
European newsprint prices declined by close to 15% during the second quarter following a fight for market share. In Asia, newsprint prices are historically low, creating a significant challenge for the Australasian business, as lower domestic demand cannot be exported at meaningful margins. The outlook for 2016 is for an improved pricing environment; however, the lost contribution in 2015 is unlikely to be compensated in the first half of 2016.
Norske Skog is launching an offer (i) to holders of the senior notes due in 2016 for new unsecured notes due in June 2019 and (ii) to holders of the senior notes due in 2017 into a mix of new unsecured notes due in June 2026 and perpetual notes. Concurrently, Norske Skog is soliciting consents of holders of the 2016, 2017, 2021 and 2023 notes to amend the terms and conditions of their existing notes. The purpose is to achieve a maturity extension, debt reduction and one common governing law of the group's international bond loans.
“A successful completion of the transactions would materially strengthen our medium-term capital structure by realizing immediate de-leveraging, substantially improve our equity position, reduce the cash interest level and extend material debt maturities,” said Sven Ombudstvedt, president and CEO of Norske Skog. “The sharp weakening of the Norwegian krone has increased the net interest bearing debt and squeezed our book equity to an unacceptable level. If the transaction is successfully completed, we can avoid a comprehensive balance sheet restructuring in the foreseeable future.”
“We believe to be in a better cost position than before, due to continued cost reduction programmes, lower oil and energy prices and better economies of scale at our remaining mills,” said Ombudstvedt. “The growth investments beyond paper are on track and will contribute to gross operating earnings already from 2016.”
An industry analyst warned late last year that Norske Skog’s Australian operation could be on the table unless the company's financial situation improved.
“There is room to do a deal that would benefit the whole capital structure and allow them to focus on running the business,” the analyst told UK-based corporate debt specialist Debtwire. “However, in 2017 they have another EUR 388m coming due and probably that is when the music stops. But until then they could still buy themselves some time to sell Australia or do some deals in Europe.” Norske Skog’s Australian operations could fetch in the region of EUR 120m, while its 33% stake in its Malaysian JV could bring in another EUR 20m, he said.
“Their two solutions are issuing up to EUR 200m of secured debt or the Aussie asset disposal,” a second analyst told Debtwire. “I don’t believe in the second one and it’s also hard to imagine the first with the current maturity profile.”
Norske Skog has two mills in Australia – at Boyer in Tasmania and at Albury in NSW – and operates the Tasman mill at Kawerau in New Zealand.