Renuka Sugars to sell Brazil plant to pare debt

Brazilian creditors to take 70% haircut, 30% to come from the sale proceed of larger unit of the two

In a partial exit from Brazil, India's sugar and ethanol manufacturer Shree Renuka Sugars Ltd (SRSL) is all set to hive off larger of the two plants of its Brazilian subsidiary Renuka do Brasil S/A (RdB). The move aims to reduce its consolidated debt burden by almost 50 per cent.

Faced with problems in servicing the debt since SRSL acquired RdB in 2010 due to sharp decline in sugar price and subdued price trend for many years, SRSL had in September 2015 applied for reorganization of its Brazilian units. An assembly of RdB creditors (except employees, sugarcane and other essential suppliers and small and medium enterprise suppliers), however, approved the reorganization plan on August 26, 2016 with 70 per cent of haircut on overall debt.

As per the approved plan, the creditors of RdB agreed to settle their debts on receiving 30 per cent of notified value of debt plus interest from the debt of plan approval until the date of payment.

"On implementation of the plan, our group level debt would reduce significantly," said Narendra Murkumbi, Managing Director, SRSL.

According to data provided by the company, its consolidated debt level stood at Rs 9,104 crore as of March 31, 2016. This will come down by half after the exit.

As on September 28, 2015 (the date of filing the Recuperacao Judicial), RdB's total bank debt stood at Rs 4,301.4 crore (or BRL 2,063 million) and other liabilities covered by the above plan at Rs 439.5 crore (BRL 210.8 million). With the approval of reorganization, total liability of RdB would decline by Rs 3,318.6 crore (BRL 1,592 million). A haircut of 70 per cent taken by lenders has become possible due to the arrangement was made under chapter 11 which deals with bankruptcy.

While one of its crushing units with a 6-million-tonne annual crushing capacity - Madhu Mill - will be sold, making it debt free, a Rs 1,000 crore debt on its another unit with 4.5 million tonnes of crushing capacity will be debt free. RBDI is another Brazilian subsidiary with 3.1 million tonnes. Its debt of Rs 1,168 crore has been restructured and will come down by Rs 168 crore under a separate restructuring plan, with the remaining Rs 1,000 crore having to be repaid in 14 years.

"While the reduction is less, the debt is restructured for 14 years. So, overall our debt reduction is dramatic. Basically, we are getting rid of all the debt," said Murkumbi.

The mill would be sold as an "independent production unit" (UPI) protected by the law from residual liabilities and contingencies.

SRSL clarified that employees, sugarcane and other essential suppliers and small and medium enterprises (SME) suppliers will be paid from the operating cash flows of RdB over the next 12 months for Rs 87.1 crore (BRL 41.78 million), which will come from the sale of Madhu Mill. The reserved price, according to sources, is fixed at $250 million.

Meanwhile, SRSL is not putting any new capital under this plan either as debt or equity. However, any shortfall in reaching the target value of 30 per cent (approximately Rs 1422.30 crore (BRL 682.2 million) will have to funded by the shareholders of RdB in cash or by sale of SRSL's controlling stake in RdB.

RdB is inducting a new chief executive officer to oversee the separation of the two mills and the sale process of Madhu Mill - which is supposed to be concluded in 90-days from judicial approval. In case if deal is not concluded in 90 days, the company and lenders have to seat and work out a solution.

The SRSL stock closed with a gain of 5.63 per cent at Rs 16.90 apiece on the BSE on Monday.