Mumbai: Singapore-based Wilmar International Ltd said it has agreed to buy a controlling stake in Shree Renuka Sugars Ltd resulting in a total cash infusion of $200 million, which will include purchasing shares from the public shareholders of the Indian company and subscribing to a proposed rights issue.

Wilmar International will buy the stake through its unit, Wilmar Sugar Holdings Pte. Ltd (WSH), in a complex deal involving two steps.

“The first step would involve an investment of 517 crore (approximately $83 million) by WSH in Shree Renuka Sugars through a preferential allotment of 257.5 million shares of fresh equity shares to WSH at a price of 20.08 per share," Wilmar International said in a statement.

After the stock purchase, WSH will hold 27.5% of Shree Renuka Sugars’ expanded equity share capital.

Following this, WSH will offer to buy as much as 26% of the expanded equity share capital of Shree Renuka Sugars from public shareholders at a price of 21.89 per share.

The second step would involve Wilmar and the existing promoters of Shree Renuka Sugars jointly participating in a rights issue to raise up to a further 725 crore of primary equity capital for Shree Renuka Sugars, the statement said.​

Both the rights issue and the open offer will be conducted jointly by Shree Renuka and Wilmar. According to the open offer documents, Wilmar’s stake can’t go beyond 49.9%.

On 19 February, Mint reported that Wilmar International is set to pick up at least a 25% stake in Murkumbi family-controlled Shree Renuka Sugars —India’s largest producer of raw sugar, citing two unidentified people familiar with the development.

As of March 2013, the consolidated debt for Shree Renuka Sugar was 8,476.86 crore, nearly 10 times the 859.45 crore it had in September 2008. The company piled up debt because of its overseas acquisitions.

In 2009, Renuka acquired Distillery Valley Ivai SA (Renuka Vale do Ivai) for $240 million.

In the following year, it bought a 59.4% stake in Equipav SA (Renuka do Brasil) for $250 million.

Shares of Shree Renuka Sugars rose 3.69% to 22.5 on BSE, while the exchange’s benchmark Sensex fell 0.9% to close at 20,536.64 points. The announcement came after market hours.

“The company has a huge debt due to the expansion in the country and overseas acquisition. The cash infusion will help it reduce the debt and, in turn, boost its profitability," said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt Ltd. “The sugar industry at large had not been performing too well in recent times," Kejriwal added.

A senior sugar industry expert said the alliance with Wilmar International could be a game changer for Shree Renuka Sugars as there are significant synergies between the two companies.

Shree Renuka Sugar’s overseas acquisition had backfired as sugar prices were hovering around $650-700 a tonne and the prices fell post the acquisition. He added that the sugar prices are around $460 a tonne and Shree Renuka Sugars had to face lower realizations and higher interest costs on its staggering debt.

“It was imperative that they had to reduce that debt. This move seems to be a step in that direction," said Phani Sekhar, a fund manager at Angel Broking Pvt. Ltd.

The proceeds of this investment and fund-raising would be used to pay down the existing debt of Shree Renuka Sugars.

Motilal Oswal Investment Advisors acted as the strategic and financial adviser to Shree Renuka Sugars, while Crawford Bayley and Co., AZB and Partners and Veirano e Advogados Associados, Brazil, acted as legal advisers. Standard Chartered Bank acted as financial adviser and will manage the open offer.

“This is a path-breaking move in the sugar business which would create a very strong partnership in some of the key global markets for sugar," said Narendra Murkumbi, vice-chairman and managing director of Shree Renuka Sugars. “Wilmar’s leadership position in the edible oil business globally and its strong reach in several countries across the world would be synergistic with our large footprint in India and Brazil, the two largest sugar producers in the world."

Besides the benefit for his company’s sugar business, this venture will complement the development of edible oils and other businesses in India, said Kuok Khoon Hong, chairman and chief executive officer of Wilmar.

Wilmar reported a profit of $1.3 billion on a revenue of $44.1 billion in fiscal 2013.

According to the agreement, Shree Renuka Sugars will be jointly controlled by the current promoters and Wilmar, with both parties holding equal shareholding and board representation in Shree Renuka. “The existing promoters will continue with the management of the company, with Wilmar being actively involved in strategic decisions," the statement.

Murkumbi said the deal is structured in such a way that promoters of the Indian company (the Murkumbi family) and Wilmar International will be holding the same equity stake at all levels. He said Shree Renuka will use 1,242 crore to retire debt.

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