Morgan Stanley to sell Jeonju Paper for around $803 mn

New York-based Morgan Stanley Private Equity is slated to sell its entire stake in Jeonju Paper Corp., South Korea's top newsprint producer, and its spinoff, according to investment banking sources on March 15.

The PE firm and Korea’s Shinhan Alternative Investment Management Co. led a consortium and acquired the pulp company for 810 billion won ($650.1 million) in 2008 from Norwegian pulp company Norske Skog. Morgan Stanley PE and Shinhan respectively own 58% and 42% stakes in Jeonju Paper. The two shareholders will divest of their combined 100% stake in Jeonju Paper and Jeonju Onepower, an electricity firm spun off from the newsprint company in 2019.

The sale will be around 900 billion to 1 trillion won ($722.6 million to $802.9 million), said the IB sources. Morgan Stanley PE and Shinhan are appealing to the potential buyers by emphasizing Jeonju Paper’s Earnings before interest, taxes, depreciation (EBITDA) that reached 140 billion won last year. The newsprint firm’s sales and operating profit in 2020 amounted to 278.5 billion won and 7.7 billion won, respectively.

The PE firm will begin marketing the sale by distributing teaser letters to potential buyers around the end of this month. The potential buyer list includes Korea’s Hansol Paper Co., apparel exporter Global Sae-A Co. and midsize conglomerate KG Group, the core business of which is chemicals.   

Morgan Stanley PE and Shinhan attempted to cash out of their buyout investment in 2019. However, they failed as Jeonju Paper’s performance worsened amid lowering demand for newsprint. Private equity firms typically recover their investment in five to six years, but the two shareholders have owned the newsprint company for more than a decade due to the paper industry slump.

For financial status improvement, Jeonju Paper has transformed its core business from newsprint to corrugated cardboard in line with the growth of the e-commerce industry. In 2018, the company transferred part of its newsprint manufacturing lines to cardboard production lines. Last year, with an additional injection of 30 billion won, it completed facilities capable of producing 1 million tons of cardboard a year. Some 80% of the paper it produces now is corrugated cardboard.

The spinoff is also garnering market attention in line with the growing importance of environmental, social and governance standards. Jeonju Onepower has developed renewable energy businesses since it founded a biomass cogeneration facility in 2010. Last year, the spinoff expanded its presence in the emissions trading market by winning a 15-year contract to supply renewable energy certificates (RECs) to Gangneung Eco Power from 2023, one of the largest renewable facilities in Korea. The RECs are worth 20 billion won.

“Jeonju Onepower has proactively reduced nitrogen dioxide generation from steam and power production. This ESG-focused business is highly attractive to potential buyers,” an IB source said.

Write to Jun-ho Cha at chacha@hankyung.com
Jihyun Kim edited this article.