Sugaronline Editorial - Attention bargain shoppers! By Meghan Sapp
Published: 02/23/2018, 12:52:00 PM
Thanks to RenovaBio, consolidation is already starting to ramp up in the Brazilian sugar market.
When sugar prices are high, everyone wants to rake in the profits but no one wants to buy assets as they’ll be going for top dollar. So the logic extends to buying up stranded, tired assets when prices are low. Although prices are much lower than many would like, they’re still not low enough to provoke industry-wide consolidation.
But Brazil is another case altogether. With the long awaited RenovaBio just around the corner, there are a number of opportunities on the market where those who’ve always wanted in on the Brazilian game could snap up assets that won’t require much to turn them around and make a profit when the new policy comes into place. A number of companies have been trying to get out from under their existing investments, from Shree Renuka to Abengoa to Bunge, who are going to suddenly find a lot of potential buyers that may let them bank some of the value they’ve created during their Brazilian adventure.
With the ink barely dry on RenovaBio, already those who saw the writing on the wall are snapping up these assets. From an US-based equity fund keen to take Renuka’s mill off its hands, even if the company isn’t pleased with some of the finer print on the deal, to last week’s auction of Sao Fernando mill, the consolidation game is already warming up. Those who believed RenovaBio would go through “sim o sim” have already been down in Brazil several times over the past few months working on due diligence with banks and market experts like Datagro, but there’s plenty on the market for all risk appetites.
Even if the big, modern mills get snapped up quickly, there are still more than 80 distressed mills that have been mothballed over the past few years that can be gotten for a steal. Although they may require as much investment as a greenfield project, scrounging for useable scrap and technology to integrate into something new and efficient, the land which it stands on is probably worth much more than the mill itself. For those with the technical knowhow and financial stamina to bring in the big guns, opportunities in Sao Paulo abound.
There will be competition, however, because although the sugar industry treats RenovaBio like it’s their own lord and saviour, others like FS Bioenergia are looking to invest US$307 million in a second, new corn-based ethanol plant or meat giant JBS who’s looking to turn its huge animal fat waste streams into biodiesel.
Opportunities abound in Brazil and the market is going to be hot, hot, hot for the next couple of years in the ramp up to 2030. Who’s going to be next to dive in?