By Sumeet Chatterjee and Chris Prentice
MUMBAI/NEW YORK Feb 20 Singapore's Wilmar
International said on Thursday it has agreed to invest
up to $145 million for a major stake in India's Shree Renuka
Sugars, which will give a sugar upstart a foothold in
the biggest consuming nation.
The transaction, which will be completed in multiple steps,
will see Wilmar - the world's top palm oil processor with
business interests in sugar, lauric oils and other commodities -
and the founders of the Indian company owning equal stakes in
While the value of the deal is relatively small compared
with multi-billion dollar deals seen across the industry over
the past decade, it is Wilmar's third big move to grow in sugar
in four years and expands its geographic footprint.
Buying a stake in Shree Renuka marks its first foray into
the world's top sugar producers, Brazil and India, amid
burgeoning demand in emerging economies. Global consumption is
expected to grow 2.5 percent to about 181 million tonnes in
With 11 mills and two refineries, Shree Renuka "fits
perfectly" with Wilmar's operations in Australia, New Zealand
and Indonesia, sugar head Jean-Luc Bohbot said in a statement.
"Besides the benefit for our sugar business, this venture
will complement the development of our edible oils and other
business in India," said Wilmar Chairman and Chief Executive
Officer Kuok Khoon Hong in the statement.
The investment will help loss-making Shree Renuka pay down
debt, which totalled $1.2 billion last June.
Wilmar's global trading reach will also give it access to
export markets as the global market braces for another surplus
this year which will total an estimated 4 million tonnes, said
Mukesh Kuvadia, secretary of the Bombay Sugar Merchant
India usually produces white sugar, but its ample supplies
have depressed local prices below the cost of production. The
government recently granted a subsidy to boost raw sugar
Wilmar's ambitious expansion into India's 24-million tonne
sugar market comes even as many of its rivals retreat as raw
prices languish around 16 cents per lb, close to or below
breakeven for many producers.
Since late last year, Bunge has been exploring
options, including a sale, of its $2 billion Brazilian sugar
business that includes eight cane mills.
THE SWEET DEAL
Wilmar and Shree Renuka are among the world's largest sugar
producers, but are still small compared with Germany's
Suedzucker and Brazil's Raizen.
They are similar in size measured by refining and crushing
capacity: with 1.9 million tonnes of annual refining capacity,
Wilmar is bigger than its Indian counterpart, which has greater
crushing might of almost 21 million tonnes.
In the first part of the deal, Wilmar will buy 27.5 percent
of Shree Renuka for $83 million through a preferential allotment
It will be followed by a mandatory tender offer to buy up to
26 percent from Shree Renuka's public shareholders by Wilmar and
the founders of the Indian company that will raise up to $86
million if the offer is fully subscribed.
The price for the tender offer has been set at 21.89 rupees
a share, compared with its Thursday close of 22.40 rupees.
In the final stage, both Wilmar and founders of Shree Renuka
will jointly invest $117 million in the Indian company through a
rights issue, the companies said in a statement after Asian
markets closed on Thursday.
The deal will see an inflow of $200 million in Shree Renuka,
which Shree Renuka will use to pare its debt, a result of its
acquisition of two Brazilian firms - Vale Do Ivai SA for $82
million in 2009 and Equipav SA for $329 million in 2010.
After the completion of the transaction, Wilmar's stake in
Shree Renuka will depend on the response to the tender offer.
Wilmar said it would fund the acquisition of the Shree
Renuka stake from internal cash and bank borrowings.
The company earlier on Thursday reported a 23-percent drop
in net profit from a year earlier in the fiscal fourth quarter.
Pre-tax sugar profits plunged over 80 percent to $19.3 million.