In the outside world—that is, the world that has little or nothing to do with sugar—there has been a lot of talk lately about IPOs. On one hand, you’ve got Facebook ready to IPO and price itself at US$100 billion, more than Amazon or about the same as BP. In biofuels, the rush to IPO has meant some comparatively large valuations as well, only to see US$15 IPO prices fall to penny stocks inside a year.
It appears that within the global sugar industry there might be a trend burgeoning to return to the stock market in order to fund further expansion and reduce debt. Cosan did it a few years back while Rusagro expected to do it last year but withdrew despite being fully booked out in nearly record time. Now just in the past week, two more sugar players appear ready to try their luck.
IPOs are one of those funny mechanisms that “observers” like to use as a bell weather for the health of the economy. And the more globalised the economy becomes, the more national stock exchanges beyond the NYSE and FTSE have begun to matter. If there’s a string of IPOs announced, and they go through with decent pricings within expected ranges, then the economy’s doing well. If a rush of companies go to price and then postpone or cancel their offerings due to “market uncertainties”, then the economy may remain in the gutter. It’s sort of a market version of the groundhog. Will the groundhog see its shadow? Is spring around the corner, or will winter continue for another six weeks?
In economic terms, it’s a question everyone seems to be asking. Is spring around the corner? With the European economy continuing its nosedive with Greece to France causing worry the world over, “observers” will look for anything that can mean improvement is on the horizon or a return to the recession.
But that’s the outside world. Inside the sugar world, IPOs can be much more microcosmic because typically they deal with national industries. Typically, but it’s not the case for all.
Let’s take a look at these two new sugar IPOs. First you’ve got LDC-SEV Bioenergia, Louis Dreyfus’s sugar arm in Brazil. The company first filed for an IPO on the Bovespa in Sao Paolo back in 2008 but was among nearly a dozen companies who withdrew their offerings based on “market uncertainties”. Then post-purchase of Santelisa Vale in 2009, the plan was to again launch an IPO with the funds going towards expansion projects.
But that IPO didn’t happen either. So now, three years later, and with Agencia Estado reporting that the company has a whopping US$1.35 billion in debt and issues with minority shareholders who own about 35% of the company, LDC-SEV announced earlier this week that it was heading back to Bovespa, but didn’t announce a timeline, nor how much it was planning to raise nor how many shares it was planning to sell.
Despite the potential for negative drivers behind this new launch to market, it’s still the world’s second largest sugar, ethanol and bioenergy company. With its 13 mills and 330,000 hectares of sugarcane, the company is hoping to sell shares not only in Brazil but also internationally. Following in the footsteps of Cosan, who’s managed to use the stock market to increase independence from shareholders while securing much needed investment (that was all previous to teaming up with Shell, of course), LDC’s move could be a timely one.
So now the game will be a little bit of “wait and see” as to whether or not “third time is the charm” for LDC’s IPO hopes or if it’s going to back away from “market uncertainties” once again.
On the other side of the sugar world, Kaset Thai Sugar is looking at a much more modestly sized IPO than LDC-SEV is probably in the market for. The company, which is a subsidiary of national rice and food giant Thai Ha, is looking at US$159 million that will give them a company valuation of about US$1 billion. It’s not clear what the capital injection would be used for, other than demonstrating even more independence from the mother company.
When Rusagro went to price its IPO last year, after having pulled its US$400 million IPO plans in 2010, it was in the market for US$300 million that would have given the company a market valuation of about US$2.08 billion. The company, who accounted for about 18% of Russian sugar production in 2010 and doubled its sugar production in 2011, pulled out of its listing at the last moment despite the fact that the two previous sessions Russian stocks had seen the best performance in more than a year.
Rusagro planned to sell 17.1% of the company’s stock in Global Depositary Receipts, similar to American Depository receipts, on the London Stock Exchange, whereas many recent planned Russian agricultural IPOs were planned for Hong Kong. Around the time that Rusagro pulled out, UralChem also pulled out of its IPO plans while Russian Sea Group sold at the bottom of its range. It’s this jitteriness in the Russian market that “observers” figured was the reason for canceling the IPO for a second time, as the company didn’t give its own reasons.
With LDC-SEV and Kaset Thai ready to launch their IPOs, it could be the beginning of a new trend in sugar to seek out capitalisation from the market. In Brazil that capitalisation is desperately needed, especially after the government’s big push to replant cane seems to have failed. A couple of IPOs coming out of the Brazilian industry could be interesting, while a smattering of other national industries could balance out the IPO run. Will Rusagro come back out of hiding and try to tap the market yet again, if these two prove successful? With Maryborough Sugar coming off the ASX post-buy out from Mitr Phol, there’s a gap in sugar equities with a global reach that needs to be filled. |
