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Norske Skog Surges Most Since 1991 as Debt Concerns Ease

Nov. 3 (Bloomberg) -- Norske Skogindustrier ASA, the second-largest newsprint maker, rose the most in at least 20 years in Oslo trading after it assured investors it would repay debt next year and reported better-than-estimated earnings.

The shares surged 54 percent, the biggest gain since at least Aug. 5, 1991, to 4.48 kroner in Oslo trading. The stock is down 68 percent this year, valuing the Lysaker-based company at 851 million kroner ($152 million).

The company’s earnings before interest, tax, depreciation and amortization rose 22 percent to 469 million kroner, beating analyst estimates of 375 million kroner. The company also said it satisfied covenants on its revolving credit facility as it grapples with an 8.1 billion-krone debt burden amid too much supply in the newsprint market, growth in online media and rising raw-material prices.

“With the cash we have and the cash flow we have guided on we have sufficient cash to meet the maturity” of a 655 million-krone bond maturing in March, Chief Financial Officer Audun Roeneid said today in an interview in Oslo. The next bond matures in 2014. The company expects to have a plan to securitize some of its accounts receivable in place by the end of the year, he said.

Market Comforted

The company, whose net loss widened to 1.83 billion kroner in the quarter from 244 million kroner a year earlier, reported debt at 5.49 times Ebitda at the end of the quarter, within the 5.75 limit on an undrawn 140 million-euro revolving credit line arranged. That limit will tighten to 5.5 times by year-end.

“The company had good numbers and comforted the market that they will be able to repay the 2012 debt,” said Thomas Nielsen, an analyst at Pareto Securities ASA. “It enables the company to get those two more years where industry consolidation can happen or they can improve their position.”

Credit-default swaps on Norske Skog tumbled, with the upfront cost of insuring 10 million euros of debt for five years dropping to 4.4 million euros from 5.2 million euros, according to CMA. That’s in addition to 100,000 euros annually.

The company also said gross operating earnings will be “somewhat” stronger this year than in 2010. “We guide then between 400 and 500 million for the fourth quarter”, Chief Executive Officer Sven Ombudstvedt said in an interview.

Norske Skog expects stable prices and volumes for newsprint and magazine paper in the fourth quarter. Input costs have peaked and are expected to decline into 2012, Ombudstvedt said.

“You will probably see over a six-month period that recovered paper is down 20 percent,” he said. “Pulp is even probably more pronounced but has a longer lead time so you will probably see a peak of $1,000 coming down toward $850 next year, and maybe lower.”

Price Increases

Quarterly contract pricing has helped paper producers pass through higher-than-expected cost inflation to customers, Ombudstvedt said. “We have been able to come back with 2 to 3 percent price increases to try to compensate.”

The net loss widened in the quarter because of writedowns, including a 927 million-krone loss on its Parenco mill in the Netherlands. The plant wasn’t recognized as a cash generating unit because it was being converted to higher margin magazine paper from newsprint production. Norske Skog is “evaluating the future of Parenco,” the CFO said.

The company may close more of its paper machines in Norway because of a strong krone and a weak market outlook, the CEO said.

Sales were little changed in the quarter at 4.8 billion kroner as production fell.

The quarterly results are “still far from satisfactory,” Ombudstvedt said. “We will make sure that Norske Skog has a capacity that is aligned with the market.”

To contact the reporter on this story: Stephen Treloar at

To contact the editor responsible for this story: Angela Cullen at

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