Australia sugar sector shake-up to go on, Tully in firing line

* Australia's sugar milling sector luring foreign firms

* Tully vote to end ownership limit likely to spark more industry rationalisation

* China's Cofco, Bunge and Australia's Mackay Sugar battle for Tully

SYDNEY, May 18 (Reuters) - Shareholders in Tully Sugar Ltd, one of Australia's largest remaining independent sugar millers, have voted for a proposal to scrap a 20 percent ownership limit, opening up the prospect of a new round of restructuring in the country's sugar industry.

Shareholders voted on Wednesday almost unanimously in favour of lifting the ownership limit in Tully, a single mill company in the tropical north-east state of Queensland, said Queensland Sugar Ltd (QSL) chairman Alan Winney.

QSL is Tully's main shareholder with a 19.9 percent stake and the vote leaves Tully open to takeover offers.

State-owned China National Cereals, Oils and Food Stuffs Corp, or Cofco, and New York-listed agribusiness giant Bunge Ltd already have offers on the table, valuing Tully Sugar at more than A$127 million ($135 million).

Cofco has indicated it will offer A$41 per share while Bunge Ltd said it will lift its offer to A$42 per share as shareholders gathered ahead of the vote in Tully.

Australian-owned Mackay Sugar Ltd, with a 4 percent stake, also wants to merge with Tully and voted in favour. It announced an offer, also of A$41 per share, ahead of the shareholders' vote on Wednesday.

The grower-owned miller said its offer was backed by one of the world's biggest sugar companies, Louis Dreyfus Commodities.

Lifting of the ownership limit on Tully Sugar needed 75 percent approval.

It was a reversal of the outcome when the shareholders voted on the ownership limit in February. Then QSL and Mackay Sugar rejected the proposal to lift the limit as Mackay Sugar was still working on its merger proposal.

Mackay Sugar, in alliance with the grower-controlled Mossman Mill in far north Queensland, hopes to keep at least part of Australia's sugar milling sector controlled by growers.

It is likely to be supported by QSL, which currently markets around 90 percent of raw sugar exports from Australia, the world's third-largest sugar exporter after Brazil and Thailand.

"QSL's next step will be to review all three bidder statements after they have been made public, before determining whether we wish to sell our shareholding, and if so, to whom," said Winney

Mackay Sugar said it would continue to support QSL's pooled marketing arrangements for its sugar exports.

The offers come after Singapore's Wilmar International Ltd last year paid A$1.75 billion for the country's biggest sugar miller, Sucrogen.

"Because Sucrogen has been sold these guys (Cofco and Bunge) realise this is their last chance to get a position in Australia, for diversification purposes in terms of weather as well as trading opportunities," said Simon Dumaresq, an analyst at Melbourne-based stock broking firm E.L. & C. Baillieu Stockbroking Ltd.

"They're interested in securing supply from a different region and obviously Australia has advantages being close to Asia," he said.

The next step may be an offer for Maryborough Sugar Factory Ltd . The company has milling assets close to the Tully mill which are twice the size.

"Its an opportunity to increase the scale as Tully is about half the volume of Maryborough, so Tully on its own is probably not big enough for Cofco to meet their needs," said Dumaresq.

Thailand's largest sugar miller, Mitr Phol , could stand in the way. It has built a 19 percent stake in Maryborough Sugar and is yet to signal its intentions.

DYNAMIC MARKET

There are 26 sugar mills in Australia owned by 10 milling groups, but many say there is room for only three or four in an industry that in a normal year produces around 4.5 million tonnes of sugar.

"One thing is for sure is we will be looking at a different industry in 12 months time in terms of ownership and structure," said Dominic Nolan, chief executive of the Australian Sugar Milling Council.

"It is a pretty dynamic market at the moment - we see it as positive thing that a lot of businesses are interested in Australian sugar," he said.

Interest in the Australian industry has not been dented by this year's crop was ravaged by floods and a cyclone, which swept through the Tully region in February.

Rabobank expects Australia's raw sugar production will be constrained to 3.2 million tonnes in 2011, compared with a five-year average of 4.4 million tonnes. Crushing of the 2011 crop began this week.

Exports are likely to be around 2.2 million tonnes, similar to the previous season when wet weather reduced the sugar content of cane crops.

source: reuters