STORA takes next step in emerging markets strategy

STORA takes next step in emerging markets strategy - intends to acquire majority holding in China-based fine-paper company In September 1997, STORA announced the first step in the Group's expansion into new high-growth markets - the Veracruz project. This project aims at securing the raw materials base for short fiber-based products. STORA now announces the second step in this strategy, the signing of a Memorandum of Understanding under which STORA will acquire a majority holding in a China-based fine paper mill, the Suzhou Papyrus Paper Co., Ltd. Final agreement with China Renaissance Industries L.P., at present the major owner of Suzhou Papyrus through its subsidiary Purple Charta Investments Limited, is expected to be reached within a few months. *** Stora Kopparbergs Bergslags AB ("STORA" ) and China Renaissance Industries L.P. jointly announced the signing of a Memorandum of Understanding under which STORA will purchase from China Renaissance up to 75 percent of the ordinary shares of Purple Charta Investments Limited, a British Virgin Island Corporation ("Purple Charta" ). The MOU provides that STORA will initially purchase 50 percent of Purple Charta's outstanding ordinary shares and will acquire an option to purchase an additional 25 percent of Purple Charta by a later date. The transaction is subject to definitive agreement and is expected to close within a few months. Purple Charta is a wholly-owned subsidiary of China Renaissance and owns 80 percent of Suzhou Papyrus Paper Co., Ltd., a Sino-foreign equity joint venture located approximately 90 kilometers west of Shanghai in the city of Suzhou in Jiangsu Province, People's Republic of China. Suzhou Papyrus engages in the manufacturing, marketing and distribution of paper and coated paper products. Suzhou Papyrus is the largest producer of high-quality woodfree coated paper in China. Its mill, put into operation in 1997, has a total annual capacity of 120,000 tonnes of woodfree coated paper, and supplies art paper and uncoated offset paper for China's printing and publishing industries. *** "The demand for graphic paper is forecast to grow twice as fast in Southeast Asia over the next ten years compared with STORA's traditional markets in Europe and North America," said STORA in a statement made in Suzhou, where the deal was announced. That corresponds to a growth rate of 7 percent, mainly in products based on locally available fibers, i.e. recycled/waste fiber and short fiber. "Even if these markets are today in some turmoil, investments of this magnitude are based on a long-term perspective," the company continued. "The price paid will be of a normal magnitude for the size and art of asset. However, the price will not be finally determined until the year 2001. "A prerequisite for the cost-efficient production of short fiber-based products, such as fine paper, in Southeast Asia is to secure long-term and assured supplies of low-cost short-fiber pulp. This is why we consider the already announced Veracruz project, our 50-50 participation in the construction of a 750,000 tonne short-fiber pulp mill in Brazil, as the first step in our expansion in new high-growth markets. "The next step includes the establishment of paper production. This project is strategically linked to the pulp project but has to be evaluated and considered profitable on its own," the company said. The pulp from Veracruz can be used either directly in the Suzhou mill, or indirectly, in which case no physical deliveries from Veracruz to Suzhou will take place but - using the fact that pulp prices are global - volumes will be sold in one market and purchased at the same price in Southeast Asia, effectively hedging the price. For an extended period of time, STORA has been making thorough studies and evaluations of various options in Southeast Asia, aiming at acquiring a majority position in a producer of coated woodfree paper located in a large domestic market. The production site should be close to a seaport and have room for expansion. "This is a new market for STORA and we need to develop our understanding and knowledge. In Suzhou Papyrus Paper we have found a project meeting our criteria concerning location, size and so on," concluded the company at the announcement. *** Note to editors STORA is one of the world's leading forest products groups, with a total production capacity of approximately six million tonnes of paper and board. STORA also produces pulp and sawn timber and is one of Sweden's largest forest owners. The Group is also a major power supplier. In 1996, the STORA Group had sales of slightly more than SEK 45 billion, of which European markets accounted for 89 percent. Markets outside Europe and North America accounted for 8 percent of sales in 1996. STORA has approximately 21,000 employees active in some 20 countries. STORA owns 50 percent of Veracruz Celulose S.A., a project aiming at the construction of a single-line pulp mill in the province of Bahia in Brazil. Total capacity will be 750,000 tonnes of short-fiber pulp p.a. and the mill will be completed in 2001-2002. The forest raw material will be supplied from eucalyptus plantations. China Renaissance Industries L.P. is an investment fund, managed by a privately held investment company, Morningside, in turn controlled by the Ronnie Chan family, who is also one of the major investors in China Renaissance Industries L.P. Mr. Chan is Chairman of the Hang Lung Development Group, and serves on the boards of many prominent international companies. Short-fiber, made from eucalyptus, birch, aspen and beech, is particularly well suited for fine papers, which in turn are used as copier paper (uncoated fine paper) or for the printing of books and catalogs (coated fine paper), among other applications. STORA has today a production capacity of 1.170 million tonnes of fine paper, mainly coated fine paper. The main markets are in Europe, but sales are also made in North America and Southeast Asia through STORA's own sales companies. For further information, please contact: - Per Knuts, Executive Vice President, tel: +49-172 260 72 64 - Mats Agur?n, Senior Vice President Communications, tel: +46-70 595 11 22