July 31 (Bloomberg) -- Norske Skogindustrier ASA dropped in Oslo trading after DNB ASA advised investors to sell shares in Europe’s third-largest newsprint maker as a frail balance sheet and weak paper market curb the company’s ability to repay debt.
Shares in Norske Skog, based in Lysaker near Oslo, fell as much as 4.3 percent, the most in more than a week, and traded 3 percent lower at 3.80 kroner as of 10:45 a.m. in the Norwegian capital. About 840,000 shares have been traded so far today, 90 percent of the average daily volume in the last three months.
Norske Skog, grappling with 6.64 billion kroner ($1.1 billion) of debt, is trying to strengthen its balance sheet amid excess supply in the newsprint market, competition from online media and rising raw-material costs. The company has sold assets, including its 51 percent stake in the Pisa mill in Brazil last month, to raise funds and reduce expenditure.
“Based on its stretched balance sheet, pure exposure to a weak paper market and lack of earnings diversification, the financing of its 2015 bond maturities looks increasingly challenging in the absence of sustained price increases,” DNB analysts Alexander Tallberg and Sampsa Karhunen said in a note today. “We initiate coverage of Norske Skog with a sell recommendation” and a 3 kroner price target, they wrote.
Norske Skog, which has assets in Europe, Asia and South America, has 1.72 billion kroner of current and non-interest bearing debt maturing before the end of 2014, including 888 million kroner of bonds, according to its second-quarter report.
It then has another 1 billion kroner of debt due in 2015, including a $158 million bond, the report shows.
While recent asset sales and the possibility of more are supportive for the company’s 2014 bonds, “2015 is our main concern,” DNB said. “In the absence of sustained improved pricing, we believe it will be challenging for the company to fulfill its fourth quarter 2015 maturities without significant restructuring or divestments.”
Yields on the papermaker’s 6.125 percent 2015 bond rose eight basis points to 25.78 percent today, according to prices compiled by Bloomberg. Shares in the company have slumped 98 percent since trading at a high of 158.806 kroner on March 11, 2002.
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