CHICAGO (Reuters) - Bunge Ltd (BG.N) may be able to get the best value for its Brazilian sugarcane milling business by launching an initial public offering of the unit, Chief Executive Soren Schroder said on Wednesday, four years after he began exploring a sale.
Schroder is weighing an IPO as a global oversupply of crops has hammered profits in the core grain trading and processing units of Bunge and its chief rivals, forcing rounds of cost-cutting that look to spill into 2018.
“It appears to be a way in which we can best get a fair value for the assets,” Schroder said about an IPO, speaking in an interview after the company posted lower year-on-year profits for the third quarter in a row.
Bunge is in the process of separating the finances of its sugarcane milling unit from the rest of the company as part of an effort to reduce its exposure to the operations, Schroder said. The move will make it easier for Bunge to act quickly once the company decides to launch an IPO or take other measures, according to the company.
In 2013, Bunge began exploring a sale of its loss-making mills, which are now turning a profit.
Improvements in Brazil’s equity market could help pave the way for a public offering. The country is the world’s top producer and exporter of sugar.
“The Brazilian market feels like it is getting ready to take on that kind of an IPO,” Schroder said.
Earnings in Bunge’s sugar and bioenergy unit dropped 77 percent from a year ago to $8 million in the third quarter ended Sept. 30, and the company lowered its guidance for the segment’s earnings for the year.
Sugar prices have tumbled as industry players have raised their expectations for excess supplies in the current 2017/18 sugar season.
Bunge’s sugar business is likely valued between $1 billion and $2 billion, said Farha Aslam, analyst for Stephens Inc.
“They have been trying to sell that business in very difficult environment in Brazil given the political dislocations, the currency gyrations and the economic uncertainty,” she said. “The political environment in Brazil has improved, which could allow for an IPO.”
Reporting by Tom Polansek and Karl Plume, Editing by Rosalba O'Brien and Lisa Shumamker