Mumbai: India’s biggest sugar refiner, Shree Renuka Sugars Ltd, has clinched a deal to acquire a controlling stake in Equipav SA Açúcar e Álcool, the sugar and ethanol unit of Brazil’s Grupo Equipav, for $329 million (around Rs1,517 crore today).
The Belgaum, Karnataka-based sugar firm nudged out the $36 billion Noble Group Ltd of Hong Kong in the race to buy the 51% stake, its second purchase in four months in Brazil. Shree Renuka bought 100% of Vale Do Ivai SA, or VDI, in November for $82 million plus debt.
Also See Sweet Success (PDF)
“This investment brings us closer to building a global sugar and ethanol business combining the most cost-efficient and scalable production areas in the world along with a leading presence in the largest ethanol and sugar markets of the world,” said Narendra Murkumbi, managing director of Shree Renuka Sugars.
On 5 February, Grupo Equipav had shortlisted five companies that were bidding for Equipav SA. Shree Renuka Sugars outbid Noble Group, which has equity investment from the Chinese government.
Shree Renuka Sugars is trying to secure raw material supplies to meet growing demand in India, the world’s biggest consumer of sugar, by building a presence in Brazil, the biggest producer and exporter of the sweetener. It will hold (after closing adjustments) a majority stake of not less than 50.79% in Equipav SA, one of the largest sugar and ethanol companies in Brazil. The balance will be held by Grupo Equipav.
Brazilian sugar cane is available for Rs1,000 per tonne; in India the price is in the range of Rs1,800-2,300 per tonne. In the current fiscal, India will import 7 million tonnes of raw sugar and white sugar. Shree Renuka, through the two acquisitions, is also trying to capture the arbitrage opportunity.
“Equipav has one of the biggest and most vertically integrated, modern operations in Brazil, with economies of scale and opportunities to form a cluster of contiguous mills; hence the partnership with Grupo Equipav”, said Murkumbi.
Equipav had net debt of around $822 million as of 31 December, according to a media statement by Shree Renuka Sugars.
The investment by the Indian company will help Equipav to fund capital expenditure, pay down debt and increase working capital.
The deal is expensive given the debt component that Murkumbi hopes to refinance, but the company is betting on demand for sugar remaining strong in the coming years. Shree Renuka would initially fork out Rs671 crore, available through a Rs185 crore promoter’s contribution through a preferential offer of shares and $105 million raised through a qualified institutional placement. The rest will come from internal accruals.
“The deal is subject to approval of an acceptable debt restructuring package by the lenders to the company and certain other conditions customary to such transactions. Closing is expected in 40 days,” the statement said.
Banco Itaú BBA of Brazil and Motilal Oswal Investment Advisors Pvt. Ltd acted as the strategic and financial advisers to Shree Renuka. Veirano e Advogados Associados of Brazil and Crawford Bayley and Co. were the legal advisers.
Equipav has two large and modern sugar and ethanol mills with integrated co-generation facilities in Sao Paulo state in south-east Brazil, having a combined cane-crushing capacity of 10.5 million tonnes per year.
In addition, Equipav has a co-generation capacity of 203MW. The mills will be expanded to a combined capacity of 12 million tonnes and 295MW.
For Equipav, cane supply comes from the cultivation of around 115,000ha of land, of which nearly two-thirds is farmed by itself. The mills have easy access to the main ports of Santos and Paranagua.
Shree Renuka Sugars acquired 100% of VDI, which has two mills with a combined cane crushing capacity of 3.1 million tonnes a year, in November. It paid $82 million in cash for VDI, valuing it at $240 million, and assumed debt for the remainder that will be repaid over eight years.
VDI also holds strategic stakes in several logistics assets, including terminals for storage and loading of sugar and ethanol at Paranagua port. Like Grupo Equipav, VDI meets a big part of its sugarcane requirements through its own cultivation of at least 18,000ha of land on a long lease.
Shree Renuka Sugars has in 10 years become India’s leading sugar refiner, in a rare business partnership between a mother and son—Vidya Murkumbi (executive chairperson) and Narendra Murkumbi, co-founder, vice-chairman and managing director. The two dabbled in manufacturing bio-pesticides before moving into sugar refining.
Grupo Equipav is one of the large conglomerates in Brazil, holding equity stakes in some 20 companies.
Its interests include highway concessions, bus terminals, water and sewage facilities, electricity generation, mortar production and waste management.