September 2011
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Shree Renuka Sugars to sell 25% in Renuka Brasil Holdings

India's largest sugar refiner Shree Renuka Sugars is in talks with several private equity companies and strategic investors to sell 25% stake to retire debt in its wholly-owned company Renuka Brasil Holdings, through which it owns two sugar companies in Brazil.

Shree Renuka is India's first sugar company with multinational operations. About 50% of the company's revenue comes from its Brazilian subsidiaries.

Shree Renuka is also learnt to have tied up with commodities and energy trader Olam International for marketing its sugar and ethanol output in Brazil. The combined cane crushing capacity of the Brazilian subsidiaries is 13.6 million tonne per annum.

Narendra Murkumbi, vice-chairman and managing director of Shree Renuka Sugars, declined comment.

The Brazilian holding company acquired the two sugar refiners for $332 million. “Going by valuations in other deals in the market, this investment would now be worth between $700 million and $800 million. The company believes this is a fair value and the right time to dilute stake,” said one person close to the development, who did not wish to be named.

Cash received from the stake sale will help Renuka Brasil reduce its $1-billion debt and expand capacity, he added.

Shree Renuka acquired sugar and ethanol producer Vale Do Ivai SA Acucar e Alcool for $82 million in November 2009 and also bought a majority stake in Equipav SA Acucar e Alcool in June 2010 for $250 million, helping it secure key raw material cheaply and giving it access to the world's largest sugar producer.

Credit rating company Fitch Ratings on Tuesday affirmed Shree Renuka's national long-term rating at 'Fitch A+(ind)' and simultaneously removed it from rating watch negative.

“The affirmation and resolution of the RWN reflect low execution and regulatory risks regarding Shree Renuka's Brazilian acquisitions – Renuka Vale do Ivai (RVDI) and Renuka do Brasil (RDB, formerly known as Equipav SA Acucar e Alcool), given the turnaround experienced in the two entities post acquisition,” Fitch said in a release.

During the financial year ended September 2010 (FY10), Shree Renuka's consolidated adjusted debt increased to 7,200 crore from 1,500 crore in the previous year, Fitch said. It comprised 4,580 crore of long-term debt, 1,640 crore of working capital debt (backed by inventory), 760 crore of off-balance sheet debt (contingent liability) and 250 crore of other debt.

This increase in debt was due to the company's acquisition of RVDI (acquired in March 2010) and RDB (acquired in July 2010) as well as its working capital requirements. In addition, consolidated operating profitability was constrained by the pro-rated inclusion of the Brazilian entities as well as by their low performance.

This resulted in Shree Renuka's financial leverage increasing to 6.2x in FY10 from 3.2x in FY09,” Fitch said.

Key rating concerns emanate from the cyclicality and volatility of the sugar industry as well as forex risk, which could have a significant impact on Shree Renuka's profitability and deleveraging trend post FY12 onwards. Further, any additional significant capex plans could result in an increase in debt, it added.

Last month, while announcing Shree Renuka Sugars' third quarter results for fiscal year 2011, Murkumbi said the Brazilian subsidiaries (Renuka do Brasil and Renuka Vale do Ivai) had a good start to the crushing season and benefited from higher prices of sugar and ethanol.

Mounting worries over lower output in Brazil and China have helped benchmark New York prices scale a six-month high at 31.85 cents per pound on August 24 and October raw sugar futures on ICE still remain within sight of that milestone.

Source: Economic Times

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