China's Hengan takes top stake in Finnish pulp project

HELSINKI (Reuters) - China's Hengan International 1044.HK has become the biggest shareholder in Finnpulp, a new Finnish company preparing a 1.4 billion euro ($1.7 billion) pulp mill in central Finland, the companies said on Monday.

Hengan is one of several Chinese businesses that have recently taken stakes in the Finland’s recovering forest industry, a key sector for its economy.

Finnpulp’s plant in Kuopio, due to start operation in 2020, is expected to have annual capacity of 1.2 million tonnes of long-fiber pulp. The final investment decision has yet to be signed.

Hengan said it would invest 12 million euros ($14.7 million) in the project’s planning, giving it a 36.5 percent stake in the operation. It has an option to increase its stake up to 49 percent.

Other owners include the Finnish Central Union of Agricultural Producers and Forest Owners as well as local investment firm Grizzly Hill.

The Finnish forest industry is recovering from a long slump as online publishing hit demand for paper. Several paper plants had to close and thousands of jobs were axed.

The paper market continues to decline in Europe, but pulp made from northern spruce and pine has a brighter outlook because it is needed for tissue and packaging board, with growing demand from China in particular.

Finnpulp’s project is one of several new Finnish plants in the pipeline.

Metsa Fiber last year started a new 1 billion euro pulp mill in central Finland, making the Finnish company the world's biggest seller of softwood pulp, ahead of Sweden's Sodra and Canadian duo Canfor Corp CFX.TO and Mercer International MERCu.TO.

Another new company, Boreal Bioref, last month said that China's Shanying Paper 600567.SS would take a majority stake in its planned 950 million euro pulp mill. Another Chinese company, CAMC Engineering 002051.SZ, also has a stake in the project.

Sunshine Kaidi New Energy Group [SKNEG.UL] has been planning a 1 billion euro biodiesel plant in northern Finland, but that project has been put on hold.

Three quarters of Finland’s territory is covered by forest and the industry accounted for 22 percent of all exports in 2016.

Reporting by Jussi Rosendahl; Editing by David Goodman