Russian farming conglomerate Rusagro said it plans to sign a deal this week to buy the debt and some equity of rival Razgulay as part of a plan to expand its sugar business at a time of rising prices. Raw sugar futures are trading near a 10-month high thanks to lower-than-expected output in No 2 grower India and as rains hampered the cane crush in Brazil's main region, fuelling prices on the import-dependent Russian market.
Rusagro had earlier agreed with Razgulay's creditor VEB to take over around 34 billion roubles ($519 million) worth of debt and 20 percent of shares of the indebted sugar and grain producer. Detailing the plan, Maxim Basov, Rusagro chief executive officer, said on Monday Rusagro expected to get a 34 billion rouble, 13-year loan from VEB at "a very low interest rate" this week to fund the acquisition.
Later on, Rusagro expects Razgulay to put its assets up for sale through auctions in which Rusagro plans to bid for several sugar mills and agricultural land, Basov added. "One scenario - we will get a lot of cash but won't buy assets, the other scenario - we will get assets and cash... We hope that we will be able to buy the assets ... in the first half of next year," he told analysts on a conference call.
He said next year's capital expenditures would likely rise to around 15 billion roubles from 10 billion roubles in 2015 partly because Rusagro planned to invest in the Razgulay mills which he said were "very under-invested." Rusagro said earlier on Monday higher sugar prices helped it deliver its best ever nine-month results as it reported a 45 percent year-on-year jump in net profit.
"The sugar price, which was very low for the past four years, now is going up so there will be a sugar upcycle. I see no reason why, with the existing rouble rate, the sugar price should go down. There are much more risks it will go up," Basov said. The company, which has a net debt to EBITDA ratio of 0.04 times, said it was looking for more deals. "We believe that (high) interest rates in Russia, the problems of the state banks, will continue to create opportunities for consolidation in the sector through the acquisition of debt and pressuring companies into distress situations," Basov said.
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