Olam International has, in a break with its history, turned vendor rather than acquirer – selling down a stake in the fertilizer business it is setting up in Africa to allow India's Tata Chemicals in on the deal.

Tata Chemicals, the water purifier-to-fertilizers giant, is to pay $290m for a 25.1% stake in the urea manufacturing business that Olam is setting up with the government of Gabon, in west Africa.

The deal puts Olam in the unusual position of seller, after an acquisition and investment spree which has, over the last four years, covered 27 projects, from a stake in London-listed sweeteners group PureCircle to coffee plantations in Ethiopia to control of dairy group New Zealand Farming Systems Uruguay.

Olam also investigated a merger with French commodities giant Louis Dreyfus to form a group with revenues of more than $43bn, a proposal which failed in February.

However, Olam and Gabon had signalled in November, when announcing their deal, a "partial sell down at a premium to third-party investors in a phased manner".

'Substantially derisk'

Sunny Verghese, the Olam chief executive, said that signing up Tata to the urea venture would "ensure successful implementation of the project on time and on budget" and "substantially derisk" Olam's exposure.

Tata's rise has been built in part on manufacture of fertilizers, at plants including a 1.25m-tonne-a-year urea plant in Uttar Pradesh.

Tata managing director R Mukundan said that the project was "in line with our focus to partner in the growth and development of Africa", where the group already as a "significant presence" in Kenya, Morocco and South Africa.

The tie-up will also open up the Indian market to where the joint venture intends to sell up to 25% of its urea, subject to official approval, with Mr Mukundan also highlighting the potential for export to Latin America besides other African countries.

Reduced exposure

The terms of the deal imply an equity valuation for the urea project of $1.16bn, a rise of some 150% from the initial book value, Olam said.

However, Olam's share of the project will be reduced from 80% to below 63%, with the Gabonese government's holding sliding to 12% from 20%.

This change will in turn cut the extent to which Olam will need to fund the project, which has an estimated cost of $1.3bn.

Olam's share of equity investment in the deal will fall to $146m from $364m, factoring in the Tata injection.