Bunge's Plan to IPO Brazil Sugar Unit Has to Overcome Sour Mood


Bunge Ltd. might have a hard time pulling off the initial public offering of its Brazilian sugar-producing business amid rising political and economic woes in Latin America’s largest economy.

The White Plains, New York-based company said Wednesday it hired Banco Itau BBA SA, JPMorgan Chase & Co. and Banco Santander SA to coordinate the sale of a minority stake in unit Bunge Acucar e Bioenergia SA, which operates eight mills with the capacity to crush 22 million tons of sugar-cane yearly.

The announcement comes with sugar prices at the lowest in three years after dropping 28 percent in the 12 months; a selloff in emerging-market assets; reduced forecasts for Brazil’s economic growth; and an uncertain political outlook as a presidential election loom.

Brazil’s sugar-cane mills, which struggled for years amid increased costs and squeezed margins, have benefited from rising domestic demand for ethanol after a cap on gasoline prices was removed. But the sector still faces long-term uncertainty as a recently approved renewable-fuel program is still lacking regulation, Alexandre Figliolino, a partner at Sao Paulo-based consulting firm MB Agro, said in a telephone interview.

"I’m still not sure how this company is going to convince investors that it will be profitable in the future," Figliolino said.

Bunge declined to comment as it is in quiet period.

Bunge will also have to convince investors its shares are more appealing than those of its peers. Sao Martinho SA is trading at 16.27 reais ($4.42) after falling 16 percent this year. Based on the average target price of eight analysts, the shares have a return potential of almost 40 percent.

Brazil’s most recent sugar IPO was in 2013 by Louis Dreyfus Holding BV, which sold a stake in Biosev SA. The country’s second-largest sugar-cane processor sold shares for 15 reais apiece and put options for 25 centavos that allowed investors to return the stock for 16.57 reais after 15 months to win over skeptics. But the shares fell 50 percent over that period, leading 80 percent of investors sell the shares back to Dreyfus.

Bunge could potentially raise about 1 billion reais by selling a 30 percent stake in the unit based on industry valuation multiples, according to Willian Hernandez, an associate at consulting firm FGA. The company’s adjusted earning before interest, taxes, depreciation and amortization was 1.37 billion reais in 2017, with net debt of 2.9 billion reais.


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