Siam Pulp and Paper Plc (SPP), the pulp and paper flagship of the Siam Cement Group, is continuing its aggressive expansion strategy with a plan worth one billion baht to take a 40% stake in Thai Cane Paper Plc. SPP's board of directors yesterday approved the purchase of 100 million newly issued shares in Thai Cane Paper at 10 baht per share. After the transaction is completed, SPP will hold a 40% stake in Thai Cane Paper, which is in the debt restructuring process. The transaction, which is expected to be completed by the end of March, is subject to the approval of the Thai Asset Management Corporation (TAMC), which is overseeing Thai Cane Paper's debts, and the completion of due diligence by SPP. Chumpol NaLamlieng, Siam Cement president, said Thai Cane Paper's annual production capacity of kraft paper for packaging products was 275,000 tonnes while SPP's was 800,000 tonnes. "Once the deal is completed, the Siam Cement Group will be the country's largest producer of kraft paper, with combined production capacity reaching one million tonnes a year," he said. The funds for the deal would come from cash in hand and accumulated profits of the group, he said. After the deal, H&Q Asia-Pacific, a US-based investment fund, which now holds a 56% majority stake in Thai Cane Paper, will see its stake diluted to 34%. Mr Chumpol said Siam Cement had seen potential in the paper business, particularly packaging paper. The market was promising, in line with export market growth and the domestic economic recovery. "The capacity expansion of our pulp and paper business under the acquisition will strengthen and prepare us for Afta (Asean Free Trade Agreement)," he said. Under the latest round of Afta tariff cuts that took effect on Jan 1, import duties on thousands of products traded within the region have fallen to a maximum of 5%. Mr Chumpol said Siam Cement would continue to buy other paper companies, particularly those classified as being non-performing debtors to banks. SPP last year acquired a 61% stake in profitable SET-listed Phoenix Pulp and Paper Plc, based in Khon Kaen. Virapan Pulges, managing director of H&Q Asia-Pacific, said the fund had reached an agreement to sell capital-increase shares of Thai Cane Paper to SPP, allowing the latter to jointly invest and develop the growth path of Thai Cane Paper. "With SPP as a shareholder, Thai Cane Paper will be able to realise greater synergies and integrate some operations. This will result in mutual shareholders' benefits of both companies," he said. Also, a partnership with SPP would enable H&Q to realise some gains from its investment in Thai Cane Paper, said Mr Virapan, who is also vice-chairman and executive director of the company. Since acquiring Thai Cane Paper's shares in 1997, H&Q's networking company, Asia-Pacific Growth Fund II, has become the largest shareholder of Thailand's third-largest kraft paper maker. Pichit Suntornwarangkana, Thai Cane Paper's managing director, said recently that the majority of the fresh capital would be used to repay debts and reduce the company's interest burden of nearly 500 million baht a year. The remainder would finance capacity expansion and construction of a 20-megawatt power plant at its Prachin Buri mill to save energy costs. Raising capacity by 30% would require an investment of about 150 million baht. SPP's board also approved a plan yesterday to delist the company from the Stock Exchange of Thailand after its parent, Siam Cement, recently purchased an additional 9.46% in SPP from Taiwan's Yuen Foong Yu Group. SPP is now 97% controlled by Siam Cement. On receiving delisting approval from the SET and SPP shareholders, Siam Cement will make a tender offer for all of the remaining SPP shares at 195 baht each. The tender offer price is after the dividend pay-out for operations in 2002. The SET suspended trading of SPP shares yesterday, pending the company's clarification of its plans. Siam Cement, meanwhile, announced a 92% improvement in 2002 profit to 14.67 billion baht. The group reported total revenue in 2002 of 130.07 billion baht, compared with 122.64 billion in the previous year, an increase of 6%. Sales of its cement business grew by 13% to 27.27 billion baht, while those of petrochemicals business rose by 11% to 42.39 billion baht. Its paper business registered 8.5% growth in sales to 29.3 billion baht. Siam Cement's board also approved yesterday a new debenture issue of up to six billion baht worth of secured and unsecured paper. The debentures will mature in four years, with redemption set for 2007. Siam Cement shares closed at 1,346 baht yesterday, down 36 baht in trade valued at 130.5 million baht. Thai Cane Paper closed at 9.85 baht, down 10 satang, in trade worth 55.197 million baht.