BRAZIL: Bunge IPO plan has to overcome sour mood

Published: 05/17/2018, 5:22:42 PM

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, according to Bloomberg.

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 tonnes of sugar-cane yearly.

The announcement comes with sugar prices at the lowest in three years after dropping 28% 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 BRL16.27 (US$4.42) after falling 16% this year. Based on the average target price of eight analysts, the shares have a return potential of almost 40%.

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 BRL15 apiece and put options for BRL0.25 that allowed investors to return the stock for BRL16.57 after 15 months to win over skeptics. But the shares fell 50% over that period, leading 80% of investors sell the shares back to Dreyfus.

Bunge could potentially raise about BRL1 billion by selling a 30% 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 BRL1.37 billion in 2017, with net debt of BRL2.9 billion.