Bunge has sold its Brazilian fertilizer assets to mining giant Vale for $3.8bn in cash, filling a warchest to spend on agribusiness and sugar expansion and ammunition to attack its heavy debt burden.

Brazil-based Vale, which said the acquisition would speed its development into a "new global leader" in fertilizer, agreed to buy Bunge's stake in Sao Paolo-listed Fertilizantes Fosfotados for $2.15bn, with a further $1.65bn spent on other phosphate production operations.

Bunge said it would use part of the proceeds of $3.5bn after taxes and fees to reduce its weighty debts, which have put the US-based group at risk of seeing its credit rating cut to junk.

However, it also flagged the opportunity to "increase the scale" of agribusiness and food operations and to "further expand into complementary value chains such as sugar".

'Compelling opportunities'

"We see compelling opportunities for growth by building on our global footprint and leveraging our commercial, logistics and risk management capabilities across a larger product portfolio," Alberto Weisser, the Bunge  chairman and chief executive, said.

"We believe this approach will deliver greater shareholder value over the long-term."

Selling out of Brazilian fertilizer mining would free the group from the "significant" capital needed to develop the assets, and steer clear of competition from the metal and coal mining leviathans which are expanding into fertilizer.

Nonetheless, Bunge will keep hold of mining assets in Argentina and the US.

Fertilizer battleground 

The deal comes as Bunge is finalising investment of up to $1.5bn in acquiring Brazilian sugar mills, amid a wave of sector consolidation, notably in Brazil, where the credit crunch left many operations struggling to meet high debt requirements.

Also on Tuesday, Australian conglomerate CSR rebuffed a bid for its sugar assets, while in the UK, bid speculation has surrounded sugar-and-starch group Tate & Lyle.

Meanwhile, Vale – a miner of aluminium, coal and copper, and the world's largest producer of iron ore and pellets – views fertilizer as a natural sector to expand into, as do raw materials rivals such as BHP Billiton, which is developing potash facilities.

Vale chief executive Roger Agnelli said: "The acquisition of these assets, combined with our potash projects, contributes to enhance the execution of Vale's growth and value creation strategy, making feasible the emergence of a new global leader in the fertilizer industry."

Market reaction

The deal received a mixed reaction from investors in Bunge, whose shares got off to a strong start, only to close down 0.9% at $61.49.

Moody's said it was sticking by its ratings on Bunge credit. Standard & Poor's, which last week said a fertilizer deal could have a "material impact" on Bunge's capital structure, had yet to comment, although its equity department cut Bunge stock to "sell" from "hold".

Vale shares closed down 1.5% at Real$41.96 in Sao Paolo, where Fosfertil stock ended down 3.1% at Real$18.40.