The late-year spurt in agribusiness deals continued even as many investors were packing up for Christmas, as Brazilian sugar and ethanol group Tonon Bioenergia revealed an asset sale to raise cash for beefing up mill capacity.
Tonon Bioenergia, based in the Centre South region which produces roughly 90% of Brazil's sugar, sold to electricity provider Grupo Energisa a controlling stake in its operations which convert cane processing waste into energy.
Tonon Bioenergia will use the R$140m raised from the sale of the stake to back plans to raise cane crushing capacity from 5.5m tonnes to 7.2m tonnes by 2014-15.
Besides expanding its existing mills, the group will lift its cane production, which currently accounts for about 80% of needs, with the remainder bought from independent suppliers.
Energy needs
For Grupo Energisa, the tie-up will help meet Brazil's growing power demand.
The company will invest a further R$350m in the venture to quadruple electricity output, net of that used in Tonon's own activities, to 707 gigawatt hours - enough to power a city with about 500,000 people.
The deal "will mean so much for energy production in Brazil in the years to come", said Tiago Medeiros, head of corporate finance at Czarnikow, Tonon's financial advisor on the transaction.
Deals and more deals
The investment also extends the spate of late year deals in the agribusiness sector which has accelerated over the last week, bucking a broader trend of weak merger and acquisition activity.
Besides a three-way bid battle for Kverneland, the Norwegian tractor group, the week has witnessed an agreed takeover of – and expression of rival interest in - Ukraine farm operator Landkom International, and a purchase by US-based Bunge of an Indian oils and fats business.
US-based co-operative CHS on Thursday revealed it had bought out Agrico Group from ACG, a Swiss-based joint venture specialising in exports of Russian grains. CHS and Agrico launched the venture two years ago with stakes of 50% each.
In South America, besides the Tonon deal, this week has seen: 12,000 hectares of Argentine land sold to Saudi Arabia's Almarai; farm operator SLC Agricola buy nearly 20,000 hectares more farmland in Brazil; and Brazilian meat giant Marfrig unveil talks to sell its distribution business to logistics group JSL.
Further cane deals ahead?
The structure of the Tonon-Grupo Energisa tie-up is, while unusual, not unprecedented, with Paraiso Bioenergia, also advised by Czarnikow, concluding a similar deal last year with Rhodia Energy, part of French chemicals giant Rhodia.
Cane waste, named bargasse, left over after extraction of sucrose has become seen as an increasingly valuable byproduct, used in animal feed and paper production, besides being burnt to produce energy, a process known as cogeneration.
Brazil produces some 5% of its electricity from bargasse, with hydro plants providing the most at 73%, according to Aneel, the sector regulator.
However, given that a minority of mills export electricity, the proportion gained from bargasse could increase to 11% by 2030, Czarnikow believes.
"The main barriers mills face in upgrading their cogeneration assets and increasing production of electricity are the high capital expenditure requirements and poor funding conditions that presently exist," Czarnikow said in a report two months ago.
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