Wilmar sweetens sugar business with USD200m stakes acquisition in Indian firm

JV with Shree Renuka Sugar underway.

According to Maybank Kim Eng, Wilmar said it is investing around USD200m in Shree Renuka Sugar (SRS), a leading sugar company in India. Although SRS is currently loss-making, Maybank thinks the 1x book valuation is fair and the acquisition comes at the right time as it believes sugar price is bottoming out.

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Wilmar announced last night that it has entered into an agreement with Mr Narendra Murkumbi, co-founder of Shree Renuka Sugar (SRS), and his affiliates (“Existing Promoters”) to invest about USD200m into SRS.

Under the terms of a joint-venture agreement, Wilmar and the Existing Promoters would jointly control SRS, with both parties having equal shareholding and board representation. Wilmar will be mainly involved in strategic decisions while the Existing Promoters continue with the management of SRS.

Completion in two steps. First, Wilmar will invest INR5,170m (USD83m) in SRS through a preferential allotment of 257.5m new shares priced at INR20.08 per share. This will give Wilmar a 27.5% stake in SRS’s expanded equity.

There will also be an open offer by Wilmar and the Existing Promoters for up to 26% of the expanded equity capital of SRS at a price of INR21.89 per share.

Second, Wilmar and the Existing Promoters will jointly participate in a rights issue to raise up to INR7,254m (USD117m). SRS will use the proceeds of this fund-raising to pare down its existing debt in India. As for Wilmar, it will rely on internal resources and bank borrowings to fund this acquisition.

With USD2.4b in cash, USD9.3b in other types of bank deposits and USD15.6b in undrawn credit facilities, we do not think Wilmar will have an issue.

A leading sugar company. SRS is a leading sugar company in India. It has refining assets with total annual capacity of 1.7m MT and milling assets with total annual capacity 7.1m MT. The company also owns about 100,000ha of land in Brazil for cane cultivation and a combined sugar milling capacity of 13.6m MT.

Wilmar’s sugar business. Wilmar is Australia’s largest cane milling company, with an annual milling capacity of about 17m MT. It operates five sugar refineries across Australia, New Zealand and Indonesia, with a combined annual production capacity of almost 2m MT. Wilmar also holds a strategic participation in Cosumar, Morocco, with 1m MT ofrefining capacity and local cane and beet production.