Wilmar expands sugar reach with Shree Renuka deal

By Sumeet Chatterjee and Chris Prentice

MUMBAI/NEW YORK (Reuters) - Singapore's Wilmar International (SES:F34.SI - News) said on Thursday it has agreed to invest up to $145 million for a major stake in Shree Renuka Sugars (NSI:RENUKA.NS - News), 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 Shree Renuka.

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 2014/15.

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 Association.

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 exports.

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 (NYS:BG - News) 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 (GER:SZU.DE - News) 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 of shares.

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.

(Additional reporting by Mayank Bhardwaj and Rajendra Jadhav in Mumbai; Editing by Erica Billingham, Josephine Mason and Alden Bentley)