Wilmar eyes stake in Shree Renuka Sugars

Shree Renuka had borrowed to part-finance acquisitions of two loss-making sugar companies in Brazil in 2009-2010

Wilmar International, a Singapore-based agribusiness group, has initiated talks to buy a stake in sugar refiner Shree Renuka Sugars. Sources familiar with the matter say Wilmar is keen on buying a majority stake in the Indian company, which is looking at various options to ease its Rs 8,400 crore debt burden.

Shree Renuka had borrowed to part-finance its acquisition of two loss-making sugar companies in Brazil in 2009-10. It had bought Vale Do Ivai SA Acucar E Alcool in 2009 for $82 million (Rs 380 crore according to the then exchange rate) and Equipav SA Acucar E Alcool in 2010 for $329 million (Rs 1,500 crore then).

Negotiations are still at the preliminary stage and might not fructify into a deal, as it is not clear if Shree Renuka’s promoters, led by Vice-Chairman Narendra Murkumbi, are interested in selling a majority stake. The talk earlier was that Shree Renuka was interested in selling stakes in its Brazilian subsidiaries.

If Wilmar, one of the world’s leading producers of palm oil, buys a majority stake in Shree Renuka, it will pave the way for its entry into important sugar markets, such as Brazil and India.

The value Wilmar might pay for a stake in Shree Renuka could not be ascertained. According to Friday’s closing price, Shree Renuka is valued at a little over Rs 1,500 crore. The company’s shares, which lost 1.1 per cent to close at Rs 22.40 on Friday, have gained 20 per cent over the past two weeks.

“There would be a premium in valuations if the deal moves in the direction of a majority stake sale, as Wilmar will gain access to two markets,” said a person in the know. Brazil is the world’s largest sugar exporter.

In response to a Business Standard query on the matter, a spokesman for Shree Renuka Sugars said: “We deny your queries listed in the email.”

A spokeswoman for Wilmar said: “We do not comment on market speculation.” Asked if the company was looking at the acquisition route to grow, she said: “We are constantly looking at opportunities to grow our various businesses, both organically and inorganically.”

Wilmar had set its foot in the sugar sector with its buyout of Australia’s Sucrogen. Since then, it has purchased mills and refiners in several countries, including Indonesia.

Shree Renuka, on the other hand, is under pressure to cut debt, as it has slipped into losses since its acquisitions. The company had posted a Rs 703.41-crore net profit on its Rs 7,669.44-crore sales in 2010-11. It reported a Rs 31.02-crore loss in 2011-12 and Rs 374.03 crore in 2012-13.

Analysts said the recent decline in the Brazilian real’s value against the dollar had made it difficult for the company to service debt.

EASING DEBT

Rs 8,400 crore
Debt on the books of Shree Renuka sugars (taken to part-finance acquisitions in Brazil)

Rs 1,500 crore
Estimated current valuation of Shree Renuka

Rs 31.02 crore
The company’s loss in 2011-12