South Africa's Mondi says could borrow to fund M&A

(Adds details, analysts comment)

JOHANNESBURG, Feb 25 (Reuters) - Mondi (EUREX: MDIF.EX - news) could borrow to fund acquisitions, its chief executive said on Thursday, after the world's No.2 paper packaging maker posted a 25 percent rise in annual profit.

South Africa-based Mondi (Other OTC: MODLF - news) , which has operations in more than 30 countries, has said acquisitions are central to its growth strategy but asset prices are inflated.

The company spent nearly 100 million euros ($110 million) on deals last year and chief executive David Hathorn said his company's balance sheet was strong enough to pursue deals if asset prices started to get attractive.

"We're currently at 1.1 (times) net debt to EBITDA (core earnings), I'd imagine we could probably could go north of 2 times and still be comfortable," he told Reuters in interview.

Mondi, rated BBB with a stable outlook by Standard & Poor's, reduced its net debt by 115 million euros to 1.5 billion euros in 2015, well below the 3.5 times EBITDA level agreed with creditors.

Analysts at Jefferies said Mondi could easily write a cheque of up to $2 billion to fund a deal.

"However, Mondi remains very disciplined on M&A, balancing any possible M&A against organic expansion and increased dividends to shareholders," Jefferies analyst Justin Jordan said.

Mondi reported a 25 percent increase in underlying operating profit thanks to higher selling prices and favourable currency moves and gave an upbeat 2016 outlook.

"While we are currently seeing some softness in certain of our packaging paper grades, we are also seeing firmer prices in the European uncoated fine paper markets following recent industry capacity rationalisation," it said.

($1 = 0.9077 euros) (Reporting by Tiisetso Motsoeneng; Editing by James Macharia and Mark Potter)