UPDATE 1-Louis Dreyfus may sell Brazil biomass plants -paper

Thu Jan 16, 2014 6:38pm EST

SAO PAULO Jan 16 (Reuters) - French commodities company Louis Dreyfus may sell the biomass energy plants of its Brazilian subsidiary Biosev, which has struggled to turn a profit in the local sugar and ethanol industry, a newspaper said on Thursday.

Biosev said in a statement "it is not conducting any negotiations to sell its cogeneration assets," which the Valor Economico newspaper said were valued at 1 billion reais ($421.92 million). But the company did not deny the possibility that it might consider the sale of existing plants or of future projects at mills not currently generating electricity.

The newspaper reported that Biosev has contacted local and international energy companies that may be interested in buying its cogeneration plants, as it tries to generate capital after failing to raise 500 million reais in a bond offer in the last quarter of 2013.

Valor Economico did not name its sources.

Biosev, Brazil's second biggest sugar and ethanol producer after Cosan, currently sells 1,000 megawatts/hour of energy in long-term contracts at a price of 140 reais per megawatt/hour at its thermoelectric plants that produce electricity from burning bagasse, or sugar cane leftovers.

Biosev has undergone a managerial change recently, replacing Chief Executive Christophe Akli with Rui Chammas, the former head of Braskem, Latin America's largest petrochemicals company. The company's chief financial officer is also stepping down later this year.

The changes in management come on the heels of several quarters of poor results from Biosev. The company posted a loss of 245 million reais in its second quarter that ended in September after bad weather dented the company's sugar cane yields.

Talk of Biosev's potential sale of its energy assets comes ahead of the July expiration of put options Louis Dreyfus linked to the 2013 initial public offering of its Brazilian sugar and ethanol producer.

Holders of the options, which give them the right to sell Biosev shares at the initial price of the IPO, are deep in the money and they are expected to exercise the puts. The strike price is 16.57 reais and the shares are trading at 10.16 reais.

Sources told Valor that Biosev has not been generating the necessary cash flow "to stand on its own legs" without the help of Louis Dreyfus, which has injected 1.2 billion reais in its subsidiary in just the past year.

The potential sale of the company's biomass energy assets would come at an opportune moment. The Brazilian government is struggling to drum up new generation capacity for distributors, which need to cover a supply and demand gap for electricity expected in the coming few years.