Shree Renuka Sugar’s billion-dollar acquisition of the world’s largest sugar production in Brazil is on the verge of turning bitter.
Four months after agreeing to buy 51 per cent stake in closely-held Equipav S.A Açúcar e Álcool, the sugar and alcohol assets of Brazil’s Equipav Group, for Rs 1,530 crore, the exclusive dialogue between the two has fallen through, three people involved in the deal confirmed to Business Standard.
There are two other potential bidders in the race. Bunge, the NYSE-listed global agro-processing giant and Hong Kong-based Noble Group, Asia's largest diversified commodities trading group, have opened parallel talks with the Equipav management for the majority stake.
Narendra Murkambi, the managing director of Shree Renuka Sugars, is flying out to Equipav’s headquarters in Sao Paolo, Brazil, tonight for the final discussion with their management. Murkambi could not be contacted despite several attempts.
Keeping in mind the volatility in sugar prices that has depressed the sectoral outlook in recent months, Shree Renuka has now revised its earlier offer for the controlling stake.
Even though it could not be independently confirmed, sources said at least a 25 per cent revision from the original offer — Rs 1,147 crore — is expected.
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“Issues like equity value of the 49 per cent residual stake and a possible exit route for the incumbent management will also be discussed this time around,” said sources.
Renuka will insist on management control at any cost. They may stay away from picking up more stake, but control and consolidation of the company will be the key.
By the middle of next week, the final picture will be clear. “It’s been dragging for far too long. It started in last June, in February this year we signed the definitive agreement or MoU… It’s now going to be June. We can’t stretch it indefinitely. It’s not an easy deal,” said a company official on condition of anonymity.
For the last one week, there have been fresh negotiations between Murkambi, his advisers Motilal Oswal and the Brazilian management. “Last weekend, a revised bid was sent, Equipav got back with their comments around Monday-Tuesday… It’s a very dynamic and fluid situation now with these two new entrants in the picture… we can even walk away from the deal,” said a Shree Renuka official.
The problem began when Shree Renuka wanted the lenders to restructure the Rs 3,821-crore ($830 million) debt. “We had to upfront invest $250 million to build a power plant, and keeping in mind how the sugar markets are changing, a restructuring was essential. The enterprise value of the company now cannot be what it was in February — close to $1.1 billion,” said the official.
Now 78 per cent of that debt — close to $650 million — is secured. The rest is unsecured as it is scattered among more than 22 lenders, who refused to take any haircut but agreed on reworking the rates. Even the tenure was extended. A four-year moratorium and a four-year repayment timeline were loosely accepted as well.
But Shree Renuka also wanted the equity value to come down, causing stiff opposition from the management and the lenders. That triggered the possible collapse of the exclusive talks.
| ACQUISITION BID IN TROUBLE February 2010 > Shree Renuka agrees to buy 51% of Equipav SA May 2010 > Exclusive talks between the two fail > Bunge and Noble Group join race > Renuka agrees to revise bid, insists on debt restructuring > Renuka MD flies to Brazil for final talks |
The deal could have helped Shree Renuka secure raw sugar supplies at a time when the global sugar deficit is expected to reach 14.8 million tonnes this year. A shortage of sugar in India, the biggest consumer, turned the country into a net importer for the first time since 2006 and pushed up global prices to a 29-year high early in the year.
In February, as per calculations of the Prime Minister’s Economic Council, the total availability of sugar in the year to September 30 has been pegged at 16 million tonnes as against the demand of 22 million tonnes. The total sugar production for the year is pegged at 15.5-16 million tonnes, the Indian Sugar Mills Association said. In 2009, the total sugar output was 14.7 million tonnes.
Post this acquisition, Shree Renuka would have gained access to 10.5 million tonnes of annual crushing capacity from two of Equipav’s plants in Sao Paolo. It would have also been among the top five sugar players in Brazil.
In November 2009, Shree Renuka had bought another Brazilian sugar and ethanol producer, Vale Do Ivai Acucar E Alcool, for Rs 1,110 crore.