Shree Renuka Sugars, India’s top refiner, announced it had reached an agreement to purchase Equipay, a Brazilian sugar company, for a reduced offer. The investment, according to the Indian firm, will enable it procure crucial raw material at reduced costs as well as give it access to the biggest global sugarcane producer.

In the fresh deal, Shree Renuka Sugars will pay about a quarter less for the investment in a majority stake in Equipay SA Acucar e Alcool at $250 million given the fact that sugar prices have almost halved, on better output estimates, since the company commenced the deal negotiations in February.

Global sugar prices corrected by more than 40% from their 2010 peaks, and pundits expect them to stay at such lows as supplies will improve further in 2010/2011. The renegotiation makes the deal a pleasant for the Indian firm in spite of the decline in sugar prices.

Pundits expect the investment to benefit Shree Renuka Sugars in the long term, in terms of procuring raw sugar for their port-based refinery in India.  Equipay is expected to be accretive on Shree Renuka’s bottom line from the fiscal year ending September 2011, even though it is not as yet clear.

Shree Renuka’s strategy and planning head, Gautma Watve, said in an interview with Reuters that it will be weeks before Equipay’s financial details can be revealed. Even so, it is hoped that the company will experience a mega leap in operating profits in the 2010 fiscal year but after tax revenues will turn accretive in the financial year 2011, said Gautma. The fiscal calendar of Indian sugar firms is between October and September, used for financial accounting by some of them.

The Indian company, currently valued at $1.01 billion had earlier offered $329 million for Equipay, viewed by pundits as costly at that time. According to Gautma, the Brazilian firm had about $822 million in debt as at 2009, December, and reported that it had renegotiated it with bankers and would thus pay it off in 10 years, instead of the initial agreed 8 years.

In a filling to the stock exchanges, Shree Renuka said in a statement that the new terms now value Equipay, owner of two huge sugar mills in Brazil, at $1.15 billion. The company expects to inject the proceeds from the deal to partly repay debt, working capital and on capital expenditure.  This is Shree Renuka Sugars' second major acquisition after it closed a deal to buy sugar and ethanol producer Vale Do Ivai S.A. Acucar E Alcool for $82 million in March 2010.

 

24 June 2010.