By Sumeet Chatterjee
MUMBAI (Reuters) - Singapore's Wilmar International has agreed to invest up to $145 million for a stake in Shree Renuka Sugars , giving it a foothold in the world's biggest sugar- consuming market.
The transaction, which will be completed in two steps, will see Wilmar - the world's top palm oil processor with business interests in sugar, laurics and other commodities - and the Indian company's founders owning equal stakes in Shree Renuka.
India is the world's second-biggest sugar producer after Brazil, where Shree Renuka has a division. Analysts said the Indian company will be able to explore new export markets after the tie-up with Wilmar.
"India has been producing surplus sugar for the past four years," said Mukesh Kuvadia, secretary of the Bombay Sugar Merchant Association. "The deal will help Shree Renuka Sugar access global markets more easily."
Wilmar said it was important for the company to establish its presence in Brazil and India, in addition to the company's existing operations in Australia, New Zealand, Indonesia and Morocco.
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India usually produces white sugar, but its ample supplies have depressed local prices below the cost of production. The government wants mills to produce raw sugar, which can be sold in the world market easily compared with white sugar.
In the first part of the deal, Wilmar will buy 27.5 percent of Shree Renuka for $83 million through a preferential allotment of shares.
It will be followed by a mandatory tender offer to buy up to 26 percent from Shree Renuka's public shareholders by Wilmar and the founders of the Indian company that will raise up to $86 million if the offer is full subscribed.
The price for the tender offer has been set at 21.89 rupees a share, compared with its Thursday close of 22.40 rupees.
In the final stage, both Wilmar and founders of Shree Renuka will jointly invest $117 million in the Indian company through a rights issue, the companies said in a statement after Asian markets closed on Thursday.
The deal will see an inflow of $200 million in Shree Renuka, which Shree Renuka will use to pare its debt, a result of its acquisition of two Brazilian firms - Vale Do Ivai SA for $82 million in 2009 and Equipav SA for $329 million in 2010.
After the completion of the transaction, Wilmar's stake in Shree Renuka will depend on the response to the tender offer.
Wilmar, which earlier on Thursday posted a 23 percent drop in its net profit in the fourth quarter to $369 million, said it would fund the acquisition of the Shree Renuka stake from internal cash and bank borrowings.
(Additional reporting Mayank Bhardwaj and Rajendra Jadhav; Editing by Erica Billingham)