Renuka Sugars seals revised Equipav deal, for lower price

In a thriller-like climax, Shree Renuka Sugars has managed to salvage its billion-dollar acquisition of closely held Equipav SA Acucar e Alcool, the sugar and alcohol assets of Brazil’s Equipav Group.

And, in a real sweetener, using the fact of the the sharp fall in sugar prices worldwide, Shree Renuka renegotiated the price. It will now be getting the 51 per cent controlling interest by paying only $240 million or Rs 1,080 crore, 25 per cent less than its original bid, sources close to the development said. What’s more, say sources, it will not have to give its own corporate guarantee to Equipav’s lenders for the Brazilian company’s debt.

Post this acquisition, 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 be among the top five sugar companies in Brazil. In November 2009, it had also bought another Brazilian sugar and ethanol producer, Vale Do Ivai Acucar E Alcool, for an enterprise value of Rs 1,110 crore.

In February, Renuka had agreed to pick up a 51 per cent stake in Equipav SA for $329 million (Rs 1,305 crore) to secure raw material supplies. At the time, the enterprise value of Equipav’s sugar assets was close to $1.3 billion. The equity was valued at $600 million (Rs 2,700) and there was $830 million (Rs 3,735 crore) of secured and unsecured debt.

The depressed market conditions since then triggered intense renegotiation. It almost turned bitter when Renuka wanted the lenders to restructure the Rs 3,821-crore ($830 million) debt. It pressed for this since it had to infuse $250 million (Rs 1,125 crore) immediately as capital expenditure. Almost 80 per cent of that debt, close to $650 million, is secured; the rest was not, being scattered among 22 lenders, who refused to take any haircut, but agreed on reworking the rates. Even the tenure was extended. A four-year moratorium and then a four-year repayment timeline were loosely accepted as well.

Global rivals
But, as a result of these renegotiations over revised valuations, the exclusive talks between the two had fallen through and Equipav was having parallel negotiations with two other bidders who had jumped into the race for the same controlling stake. They included Bunge, the NYSE-listed global agro -processing giant and the Hong Kong-based Noble Group, Asia’s largest diversified commodities trading group. Business Standard had, last week, reported on all those developments.

For the past week, Shree Renuka’s managing director, Narendra Murkumbi, along with his advisers from Motilal Oswal, have been camping at Equipav’s headquarters in Sao Paolo, Brazil. They have finally outmaneuvered the two global bidders.

Despite several attempts, contact could not be made with Murkumbi in Sao Paolo. It was not a smooth ride, say sources. Even yesterday, there was a difference of opinion among the three families who control Equipav about the deal structuring and the revised value. But, finally, Renuka managed to convince all.

“Bunge and Noble’s term sheet was very similar to Renuka’s. They too had a revised offer for the equity at $470-480 million (Rs 2,115 –2,160 crore) , but what went against them was that they had not done any due diligence. So, to conclude a deal with them would have taken another two-three months. Renuka already did the exercise and could close the deal a lot faster and for a company that’s starved for cash, time is of the essence,” said a source. “Also, Bunge and Noble wanted a 100 per cent buyout, while Shree Renuka was happy with majority control of 51 per cent. And, the promoters ideally wanted to stay on for any potential upside,” he added.

The legal documents are expected to get signed by the end of the week and the deal should close within a fortnight. It’s still not clear if Renuka will insist on an additional 8 per cent equity. Also, there is still lack of clarity if the Brazilian promoters will have a put option for their residual stake after four to five years.

The deal enables Renuka to secure raw sugar supplies at a time when the year’s global sugar deficit is expected to reach 14.8 million tonnes. 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 earlier in the year.

In February, calculated the Prime Minister’s Economic Advisory Council, the total availability of sugar in the year to September 30 was pegged at 16 mt, compared to the demand of 22 mt. Production for the year would be 15.5-16 mt, the Indian Sugar Mills Association said around the same time. In 2009, total sugar output was 14.7 mt.