March 20, 2012 / 11:49 AM / 5 years ago

UPDATE 2-Stora Enso to invest 1.6 bln euros in new China mill

* Stora Enso to build 1.6 bln euro mill in China

* Pulp capacity 900,000 tonnes

* Company targets Asia's growing food package market (Adds Moody's reaction, share move and CEO comments)

HELSINKI, March 20 (Reuters) - Finnish paper company Stora Enso plans to invest 1.6 billion euros ($2.1 billion) to build a new mill in China, banking on growth in the Asian market as it faces weakening demand and overcapacity in Europe.

Stora Enso said on Tuesday that it would build an integrated board and pulp mill in Guangxi, southern China, with a paperboard capacity of 900,000 tonnes. Production is scheduled to start in the fourth quarter of 2014.

Paperboard is used for everything from food to cigarette packages. Stora Enso Chief Executive Jouko Karvinen said the food packaging business is attractive as some 1.5 billion new consumers are forecast to start buying packaged food in the next 10-15 years.

"Obviously a very significant part of that will be Asia, especially China. We say about one half of the total growth is in China," Karvinen told a conference call.

The company has been struggling to cope with a weakening European market amid slow economic growth and a shift by consumers to online media. It has been cutting jobs and shifting its focus to consumer packaging board from paper.

"This investment has been long-awaited and was not surprising. This is in line with their strategy of getting growth from emerging markets," Evli analyst Markku Jarvinen said.

Stora Enso has been building plantations around Guangxi since 2002. The company's other operations in China include a coated fine paper mill in Suzhou and an uncoated magazine paper mill in Dawang.

The latest project will be financed by around 60 percent debt and 40 percent equity, the company said. Rating agency Moody's affirmed Stora Enso's Ba2 credit rating and stable outlook, saying the investment would make it less dependent on the declining European paper market.

The mill is due to be operated as a joint-venture with state-owned Guangxi Forestry Group, which will hold 15 percent of the equity.

Shares in Stora Enso were 0.3 percent lower at 5.75 euros by 1401 GMT, off the lows of 5.62 euros, while rival UPM-Kymmene was down 1.5 percent and the STOXX Europe 600 basic materials index 3.5 percent lower. ($1 = 0.7552 euros) (Reporting by Terhi Kinnunen and Eero Vassinen; Editing by Helen Massy-Beresford)

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