UPDATE 3-Louis Dreyfus plans $548 mln IPO for Brazil unit

* Biosev is world's 2nd largest sugarcane crusher

* Suggests price tag of 16.50-20.50 reais a share

* Cane sector ripening for new wave of takeovers

By Asher Levine and Reese Ewing

SAO PAULO, June 29 (Reuters) - The Brazilian unit of global financial and commodities firm Louis Dreyfus Corp said on Friday it will spin off its sugar and ethanol division Biosev in an initial share offering that could raise up to $548 million for expansion plans.

Louis Dreyfus was one of the first multinational corporations to enter the Brazilian cane sector, when it snapped up the Santelisa Vale milling group in 2009 at what many thought was a steal in the wake of the global financial crisis.

The Santelisa Vale mills, which were considered the crown jewels of the sector and some of the most modern and efficient mills at the time, were recently renamed Biosev in advance of Louis Dreyfus' first public share offer.

Closely held, 160-year-old Louis Dreyfus partly follows Glencore International Plc, which went public last year as the rising price of commodities and the need to fund expansion and investments strained its balance sheet.

European banks, major sources of funding for the global commodities trade, have been tightening credit lines to brace for asset writedowns on their balance sheets. At the same time, Brazilian banks have partially taken up that slack and tried to entice commodities companies to borrow or raise money in local capital markets.

IPOs in Brazil, however, are at a standstill, with investors increasingly averse to buying stock in companies that are not widely known, in pre-operational phases, or in need of funding. Instead, more investors are buying follow-on offerings because risk is easier to assess than in IPOs.

USE OF PROCEEDS

Biosev is considered the second largest sugar cane crushing firm in the world, according to the company's website. The group owns 11 mills across Brazil's main cane growing state of Sao Paulo and Minas Gerais and two other mills in the northeast. All but one produce both sugar and ethanol. Combined sugar output is about 2.8 million tonnes a year and ethanol 1.8 billion liters.

The IPO could raise up to 1.14 billion reais ($548 million), according to terms of the transaction unveiled.

The company said the capital raised from the IPO would go to expand its output of sugar cane, as well as its capacity to produce sugar and ethanol.

Sao Paulo-based Biosev will sell as many as 55.64 million common shares at a suggested price of between 16.50 reais and 20.50 reais a piece, the company said in a prospectus published in a local newspaper. Pricing for the Biosev offering is scheduled to take place on July 18, while trading on Brazil's Bovespa exchange is expected to begin on July 20.

The company hired the investment-banking units of Banco Santander, Banco Votorantim, Banco do Brasil, Itaú Unibanco Holding, JPMorgan Chase & Co, and Banco Bradesco to manage the transaction.

FRAGILE SECTOR

Many milling groups and investors in Brazil, which had highly leveraged their expansion plans when oil reached $147 a barrel in the salad days of 2008, leading up to the U.S. subprime mortgage crisis, were devastated when global credit locked up later that year.

Mills are currently engaged at boosting the available supply of cane, the raw material for sugar and ethanol production. The industry has a constructed capacity to crush more than 600 million tonnes of cane, but the region's crop this 2012-2013 season is only likely to be about 510 million tonnes. This shortfall greatly raises mills' operating costs.

Falling sugar prices and losses from ethanol production due to the Brazilian government's decision to hold down fuel prices have also contributed to continued fragility in the cane sector.

Some big mills are building capital for a potential new round of acquisitions that could be unleashed in the near future.

"My feeling is the current difficult market conditions in the sugar and ethanol sector are going to soften up some interesting assets for takeover," said an executive in a multinational trading house with local cane milling operations.