* To sell stake to Potential Industries
* Accounting loss of 255 million crowns
* Says to restructure other activities in China (Adds background, comments from Norske Skog, share price)
OSLO, July 13 (Reuters) - Norske Skog said on Monday it is to sell its 56 percent stake in Shanghai newsprint mill Norske Skog Potential Paper (SNP) to a local partner and restructure its other activities in China to improve profitability.
The sale entails an accounting loss of 255 million crowns ($39 million) but will reduce the Norwegian papermaker's gross interest-bearing debt by about 150 million crowns, it said.
The company, one of the world's biggest newsprint producers, has struggled for more than six years to climb out of a slump, as soft demand and overcapacity have kept prices down.
Potential Industries, which now holds a 34 percent stake in the mill, will take over all of Norske Skog's shares in SNP which has a newsprint production capacity of 145,000 tonnes and is one of the smallest mills in Norske Skog's global portfolio.
"The transaction entails that all debts and other commitments remain with SNP," Norske Skog said in a statement.
Shanghai Baoshan Shi Dong-kou Economic and Trading General Co holds 10 percent of the mill.
Norske Skog said it had the choice between making further cash injections or selling the mill.
"We ... do not want to sell with a loss, but this is a mill that has been running with a deficit for seven of the last 10 quarters, so it is mostly about limiting further losses," head of communications, Tom Bratlie, told Reuters.
Bratlie did not want to rule out the possibility that Norske Skog might pull out of China completely.
"I do not want to speculate about this now. But we have earlier said that we are open to additional transactions to reduce the company's debt," he said, adding that there were no specific plans at the moment.
He said Norske Skog still believed the Chinese market would pick up although it was tough to earn money at the moment.
"China is still the market in the world that has the best increase in demand for newspaper," he said, adding that overcapacity remained the main problem.
IMPROVE PROFITABILITY
Norske Skog said it would focus on raising profitability in the rest of its activities in China, which consist of the newsprint mill Norske Skog Hebei, with a production capacity of 330,000 tonnes, and an administration and sales office in Shanghai.
"The sale of SNP frees up resources for the work to improve profitability at Norske Skog Hebei while at the same time streamlining sales and administration in China," Chief Executive Christian Rynning-Toennesen said in the statement.
Bratlie said it would rationalise the rest of the business, aiming to reduce costs and increase profitability.
Shares in Norske Skog were up 0.9 percent at 8.08 crowns by 0917 GMT, when the main Oslo bourse index was flat.
Norske Skog said the transaction is contingent upon the approval of the Chinese authorities which is expected by the end of September this year.
($1=6.546 Norwegian crowns)
(Reporting by Aasa Christine Stoltz and Joachim Dagenborg; Editing by Greg Mahlich)