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Mitsui buys into Russian lumber company

Mitsui & Co has become a co-owner of ZAO Baikalskaya Lesnaya Kompaniya (BLK) with a 40% stake. Source: Rossiyskaya Gazeta

Mitsui reported having secured the deal to purchase a portion of BLK shares from parent company OOO Bail and taking a third-party allocation of new shares.

According to the Buryat administration, BLK received around 1 billion roubles (US$30 million) from issuing the additional shares. This sum will be spent on building a wood waste recycling and pallet making facility, and also on settling BLK’s debt to Russia’s largest bank Sberbank.

The company is not disclosing the size of the debt.

BLK obtained two lines of credit from Sberbank in December 2012.

The company has prior experience working with Japanese partners its timber processing plant, launched in 2012, sells nearly all its produce to Japan.

This is a second Russian timber project for Mitsui. In 1991, the company acquired a 14% stake in the Irkutsk Region-based logging and lumber processing specialist TM Baikal Co Ltd.

Mitsui said it will be selling Buryat lumber to Asia and the Middle East. Most of these exports will be to China.

BLK is a medium-sized company specialising in mechanical conversion of logs into lumber, said Alexei Bogatyrev, founder of Lesprom Network.

Mitsui’s interest in BLK can be explained by its history of investing in Russia, and also by its desire to avail itself of Japan’s growing demand for lumber and timber.

Japan’s housing market is currently booming in anticipation of a hike in consumption tax planned for 2014. In this situation Mitsui can expect to see steady demand for Russian wood in its home country.

The Chinese wood market is more difficult to tap into, owing to high competition and a general economic slowdown in China.