Nine Dragons Rises on Plan to Buy Vietnamese Paper Manufacturer

Nine Dragons Paper (Holdings) Ltd., China's biggest maker of containerboard used for packaging, rose to the highest in almost two months in Hong Kong trading after announcing plans to buy a paper maker in Viet Nam.

The shares gained 12% to HK$10.18 as of 12:24 p.m., the biggest advance in the MSCI Asia Pacific Index today. Nine Dragons will buy 60% of Cheng Yang, a maker of industrial paper products, for $22.8 million, the Hong Kong-based company said in a statement to the local stock exchange yesterday.

Nine Dragons aims to increase its production and export bases outside of China to gain market share. The company is raising prices after reporting a smaller-than-expected gain in fiscal first-half net income in March because of increased costs of imported recycled paper, its main raw material.

Cheng Yang's products are mainly sold in Vietnam, Laos and Cambodia. Nine Dragons will transfer a paper-making machine to Cheng Yang to increase the company's annual production capacity to 500,000 tons from 100,000 tons by the end of 2009, the statement said. The machine was originally earmarked for a Nine Dragons factory in mainland China, it said.

Cheng Yang may invest $200 million to expand production, the statement said.

Nine Dragons is controlled by Zhang Yin, one of China's richest people. The stock has lost 49% this year, compared with a 5.9% drop in Hong Kong's benchmark Hang Seng Index. (Bloomberg)