Shree Renuka Sugars to acquire 51 pc stake in Brazilian co

MUMBAI: The scrip of sugar refining major Shree Renuka Sugars Ltd (SRSL) rose more than 3.94 percent at the Bombay Stock Exchange during morning
trade Monday, after the company said it was acquiring majority stake in a large Brazilian sugar and ethanol firm.

The SRSL stock rose more than 3.94 percent to Rs.187 during morning trade, before settling to Rs.184.10, an increase of 2.33 percent from its previous close at Rs.179.90.

"We have entered into definitive agreements with Grupo Equipav for an investment of $329 million (Rs.1,530 crore) leading to a majority, controlling equity stake in Equipav S.A. ACUCAR e ALCOOL (Equipav), one of the largest sugar or ethanol Companies in Brazil," Shree Renuka Sugars said in a statement.

After the deal, Shree Renuka Sugars stake in the Equipav will be 50.79 percent, while the balance stake would be held by the founding Equipav group.

ET had reported in its edition dated February 6 that the Belguam, Karnataka-based company was vying to buy the sugar and alcohol businesses of Brazil’s Equipav Group in a bid to improve access to supply of raw material at a time when availability of sugar in the Indian market has fallen short of demand, leading to higher prices.
India, the world’s biggest consumer of the sweetener, is likely to import around 7 million tonne this year, as lower area under cultivation and poor monsoon have hit cane output. In the period between October 1, 2009, and September 30, 2010 — the so-called sugar year — India is likely to produce 15.5 million tonne, while domestic consumption is around 23 million tonne.

Shree Renuka had bought another Brazilian sugar and ethanol producer, Vale Do Ivai Acucar E Alcool, for an enterprise value of $240 million (Rs 1,110 crore) in November last year. The Indian company said in a statement that it would acquire “not less than 50.8% stake” in Equipav. Shree Renuka will have the option of buying the remaining stake of the promoters later, a normal provision in such agreements.

Shree Renuka would fund the deal using money it had raised last year by selling shares to institutional investors and convertible warrants to promoters as well as internal accruals, said Gautam Watve, head of strategy and planning. The company had raised Rs 500 crore through a qualified institutional placement in July last year while the Murkambi family, the promoters of Shree Renuka, will contribute Rs 185 crore through conversion of warrants.

Equipav would use the deal proceeds to scale up its capacity, reduce debt and raise working capital. Its capacity will go up by 14% to 12 million tonnes a year, making Shree Renuka among the top five sugar makers in Brazil. Vale, the other Brazilian company owned by Shree Renuka, has a cane crushing capacity of 3.1 million tonne a year.

Equipav had debt of Rs 3,821 crore as on December 31, 2009, which would be renegotiated with the lenders, Narendra Murkambi, the managing director of Shree Renuka, said in a statement. The transaction is subject to lenders to Equipav approving a restructuring of the debt of the Brazilian company.

Shree Renuka has been looking for assets in Brazil, where valuations are comparatively attractive despite high sugar prices. The Indian company processed about 0.65 million tonne of raw sugar between October 2008 and September 2009, and plans to refine 1.2 million tonne in 2009-10. It also makes ethanol, or ethyl alcohol, from molasses, a by-product of the cane crushing process. Ethanol can be used as a biofuel and can be added to petrol.

The Eqipav promoters, who own equity stake in 20 companies in diverse sectors like highway concessions, bus terminals, water and sewage plants, electricity generation, mortar production, waste management and maintenance of green areas, had put their sugar business on the block around mid-2009. But the deal was delayed due to their internal differences. The Brazilian Group has been in the sugar and ethanol business since 1980.

Banco Itau BBA, Brazil, and Motilal Oswal Investment Advisors acted as the strategic and financial advisors to Shree Renuka. Veirano e Advogados Associados, Brazil, and Crawford Bayley & Co acted as legal advisors. This transaction will help India reduce dependence on imports, said Mr Murkambi.

The Shree Reunka Sugars stock lost 4% to close at Rs 179.90 on Friday, putting the market capitalisation of the company at Rs 5,701 crore.

source: ET