The paper packaging firm's net debt currently stands at over Euro4.66bn and includes Euro325m of so-called HoldCo Payment in Kind (PIK) notes, which are extremely high yield, high risk debt instruments. While high risk for debt investors, the PIK notes are seen as a bridging loan until an IPO takes place.

A so-called primary IPO would see the company play down substantial debt, making it attractive to new equity investors, while a secondary IPO would see existing investors such as Madison Dearborn realising a greater return, without as much debt being played down. If the company used flotation proceeds to do the latter, then the shareprice would have to be pitched at a lower range in order to entice equity investors.

The credit rating agency also said that Smurfit Kappa's sizeable Euro635m pension liability is unlikely to prove an obstacle as it can be addressed in the longer term.

Despite its high debt levels, analysts said that a flotation, which could value the firm at as much as Euro6.5bn, is still likely to be attractive to investors due to the improving market conditions for the company.

Last week ratings agency Standard & Poor's said it was putting Smurfit Kappa's debt ratings under review for upgrade. It said regardless of whether the group undertakes an IPO, its credit ratings are likely to improve in 2007 due to better financial performance.

Although it has been speculated that an IPO may proceed as early as this quarter, some sources have cast doubt over whether Smurfit Kappa could do so in such a short timeframe and said it is more likely that it could be primed for the market closer to the summer.