Paper Excellence, a Richmond-headquartered company that started in Canada with a single pulp mill in 2007, is now poised to become one of North America’s biggest pulp and paper companies.
Last year, the company roughly doubled in size and international scope with the acquisition of Domtar for $3 billion and a Brazilian pulp and paper company for $2.9 billion.
On October 31, shareholders with Montreal-based Resolute Forest Products (TSX,NYSE:RFP) will vote on a proposal by Paper Excellence to acquire the company, through its new subsidiary Domtar and its affiliates (Karta Halten B.V. and Paper Excellence B.V., based in the Netherlands) for $2.7 billion.
Should the deal be approved, Domtar, with headquarters in both Montreal and South Carolina, will become Resolute’s parent company, according to filings with the Securities and Exchange Commission (SEC) in the U.S., with Paper Excellence the parent of Domtar.
Based on the valuation of the deals, and the number of employees and assets that Paper Excellence will have acquired, it would put the company on par with Wester Fraser Timber (TSX:WFG), which has a market cap of $8.5 billion and is North America’s largest forestry company.
Greenpeace and other environmental groups are raising concerns with the acquisition, however, with the release of a 70-page report in advance of the October 31 shareholder meeting – a report that ties Paper Excellence to Indonesian conglomerate Sinar Mas and its affiliate, Asia Pulp and Paper (APP), and APP’s questionable environmental and financial track record.
The report says Paper Excellence is “part of the same corporate group as APP and Sinar Mas.” One Canadian pulp and paper industry insider who spoke to BIV News on background does not dispute the linkage, saying APP does appear to be a parent company of Paper Excellence, albeit distanced though a number of holding companies.
“It is increasingly important for stakeholders to ask: Who owns, controls, and benefits from Paper Excellence and its operating companies?” says the report, Papering Over Corporate Control, by Greenpeace, the Environmental Paper Network, Rainforest Action Network and Woods and Wayside International.
“In conducting their due diligence, stakeholders will need to understand the connections between Paper Excellence and APP/Sinar Mas, and to assess the implications and potential risks of APP and Sinar Mas’ track records on environmental, social, and financial issues.”
The report adds the Competition Bureau of Canada and American Federal Trade Commission’s Bureau of Competition “may consider this analysis useful in assessing market concentration issues.” It also says the report “may be of interest to financing institutions.”
According to SEC filings, Domtar and its subsidiaries have secured debt financing commitments of up to US $1.5 billion from a number of lenders, including Barclays Bank PLC, Bank of Montreal, Wells Fargo Bank, and Royal Bank of Canada. The Greenpeace report also says Paper Excellence has an equity commitment of US$1.5 billion from an unidentified affiliate of Kata Halten B.V.
APP’s environmental and financial record
In 2007, the Forest Stewardship Council (FSC) cited “substantial, publicly available information that APP was involved in destructive forestry practices” in Indonesia when it disassociated itself from APP. APP said in 2021 that it has been working to address issues with its forestry practices and become recertified, but to date the company remains “disassociated” with FSC.
In 2001, APP, then publicly listed on the New York Stock Exchange, called for a standstill of US$14 billion in loans and bonds in what the Wall Street Journal characterized as “one of the largest defaults in Asian market history.”
APP was delisted from the NYSE, forced to restructure, and entered arrangements to repay some of its debts over a 13-year period.
As for Paper Excellence, it is a private company owned by Jackson Widjaja (also sometimes listed as Jackson Widjaya Limantara), son of Teguh Ganda Widjaja, former president of Sinar Mas Group. Edwin Widjaja, Paper Excellence’s current vice president of pulp sales, was previously the fibre procurement manager for APP.
The media-shy Jackson Widjaja has never granted an interview, and has no public profile. In its report, Greenpeace et al links Paper Excellence with Sinar Mas and APP through various family connections and holding companies.
The report points out that, when Paper Excellence B.V., based in the Netherlands, bought its first mill in Saskatchewan in 2007 – Meadow Lake Mechanical Pulp -- the company identified itself as a division of the Sinar Mas Group.
In communications to the Saskatchewan Environmental Assessment Branch, Meadow Lake Mechanical Pulp described itself as “a division of Sinarmas Group.” A 2007 press release on the acquisition of Meadow Lake Mechanical Pulp said the “purchaser is indirectly related to the Sinar Mas companies.”
More recently, the B.C. Office of the Registrar of Lobbyists details meetings with various cabinet ministers by former NDP MLA and cabinet minister Moe Sihota on issues of fibre security on behalf of Paper Excellence. The registry notes Sinar Mas Group as an “affiliate with a direct interest in the outcome.”
“Taken together, this nexus of family ties, overlapping management, and lobbyist filings indicate that Sinar Mas controls Paper Excellence,” the report asserts.
Paper Excellence has not yet responded to BIV’s request for an interview. But in the report itself, officials with both Paper Excellence and APP disavow any connection with each other, apart from a family connection.
“Paper Excellence is entirely independent of APP/Sinar Mas,” said Graham Kissak, vice president of corporate communications for Paper Excellence.
“Of course, it is well known that Jackson Wijaya (sic), the ultimate owner of PE, is the son of the current leader of APP/SMG. But Jackson continues to operate PE completely independently….There are no ownership or control links with APP/Sinar Mas or anybody else.”
Even if Paper Excellence is an affiliate of Sinar Mas and APP, it begs the question whether a parent company’s environmental and financial history in Indonesia should refelct on Paper Excellence’s performance in Canada. The report is careful to note that it doesn’t necessarily.
“In analyzing the linkages of Paper Excellence with APP and Sinar Mas, the authors of the report emphasize that APP and Sinar Mas’ respective performance and practices, either in the past or at present, may not be indicative of those of Paper Excellence and/or its affiliates,” the report acknowledges.
“I think that is to be clear, that there’s no formal allegations being made,” Joshua Martin, director of Environmental Paper Network, told BIV News.
“The point of the report is that people need to do due diligence, and there are hidden risks that are not entirely clear to stakeholders because of the opaque structure (of the company). But they are risks because they have the same ultimate beneficiary.”
Financially, associations -- perceived or otherwise -- with APP could make it harder for Paper Excellence to borrow from Canadian or American lenders for its expansions.
As for ESG issues, Paper Excellence operates very differently in Canada than APP operates in Indonesia, where APP sources 51% of its fibre for its pulp and paper mills from tree plantations and 44% from recycled paper, according to the company’s sustainability reporting.
Paper Excellence has five pulp mills in B.C., but no forestry tenure. The company buys sawmill waste and pulp logs from the open market, which is verified through chain of custody certifiers, including the Forest Stewardship Council.
The company notes in its sustainability report that its use of pulp logs has increased since 2017, as the availability of sawmill waste has declined – a B.C.-wide phenomenon resulting from a shrinking timber supply and the closure of several sawmills in recent years.
Pulp and paper mills in B.C. are facing serious fibre supply challenges, which has resulted in or at least contributed to some pulp and paper mill curtailments, including by Paper Excellence, and could lead to more.
Since 2020, Paper Excellence has permanently shuttered its Mackenzie pulp mill, indefinitely curtailed its paper mill in Powell River and plans to curtail its paper mill in Crofton by the end of this year, though its pulp mill there will remain in operation, though the pulp mill too may be shut down temporarily, as a result of a labour dispute.
As BIV News reported Friday, a strike notice issued by PPWC Local 2 resulted in Paper Excellence announcing it will now shut down the Crofton pulp and paper mill, though the company said it "hopes for a speedy return to discussions and the restart of the Crofton facility."
In Nova Scotia, a pulp mill that Paper Excellence bought in 2011 was shut down in 2020 and the company launched a lawsuit against the Nova Scotia government. As BIV News reported in 2020, the dispute was over the use of Boat Harbour for discharging pulp mill effluent. Paper Excellence is suing the Nova Scotian government for $450 million, claiming the government moved the goal posts on environmental regulations, forcing the pulp mill to be shut down.
As for the planned acquisition of Resolute Forest Products, Paper Excellence, through Domtar, is offering a 64% premium on Resolute stock, which jumped 63.7% July 6, from $16.23 to $26.57 per share, after the planned acquisition was announced. Resolute’s stock is currently trading above $28 per share. Resolute’s market cap is $2.2 billion.
Should the deal be approved by Resolute's shareholders, the report notes that Paper Excellence would rival West Fraser Timber for the title of largest North American forestry company.
“If the acquisition of Resolute Forest Products is approved by shareholders and regulators, Paper Excellence will own companies that employ more than 20,000 workers and that generated US$11 billion in revenue in 2021. The current largest wood products company based in Canada is West Fraser Timber, which had US$10.5 billion in revenue and 10,625 employees in 2021.”
Complex ownership
Paper Excellence has a complex corporate structure involving a number of offshore holding companies.
According to the Greenpeace report, Paper Excellence and Paper Excellence B.V. have been owned since 2012 by Elite Shine Investments Limited, incorporated in the Virgin Islands. It then traces Elite Shine to Capital Asset Holdings Bhd, then to Fortune Everrich Sdn Bhd and ultimately to Paper Excellence B.V. and Hervey Investments B.V.
The Canadian assets are owned by Paper Excellence B.V. and Hervey Investments B.V., which also ultimately own Brazilian and French pulp mills.
Domtar and its assets are now owned by Paper Excllence B.V., Karta Halten B.V. and Hervey Investments B.V.
Responding to this complex ownership structure, Graham Kissack says in the Greenpeace report: "There is not, and never has been, an intention to create a corporate structure at Paper Excellence that is intended to hide anything.
“There are various factors to think about when building the corporate structure of a business. This is all the more relevant in the case of international business such as that of the PE Group. These include tax, corporate finance, allocation of corporate liability and the like.”
BIV News has reached out to Resolute Forest Products and Paper Excellence for comment on the report. This story will be updated, should they respond to the report.
