The Telegraph
Friday , February 21 , 2014
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Wilmar buys stake in Shree Renuka

Mumbai, Feb 20: Wilmar International Ltd is investing $200 million (Rs 1200 crore) in Shree Renuka Sugars Ltd (SRS) in a complex deal that will also see the Singapore-based agri-business group making an open offer to the minority shareholders of SRS.

Wilmar will make the investment through Wilmar Sugar Holdings Pte. Ltd (WSH), its 100 per cent subsidiary.

Under the terms of the agreement struck today between WSH and the Murkumbi family which is the existing promoter of SRS, Wilmar will first make an investment of Rs 517 crore ($83 million) through a preferential allotment of 25.75 crore equity shares at a price of Rs 20.08 per share. SRS will issue fresh shares under the preferential offer.

This preferential issue will result in Wilmar holding a maximum of 27.5 per cent of SRS’s expanded equity share capital. Interestingly, there will be an open offer by WSH and the existing promoters to the minority shareholders of SRS to raise up to 26 per cent of the expanded equity at a price of Rs 21.89 per share.

Typically, it is the acquirer (in this case Wilmar) which has to make an open offer if its holding breaches 25 per cent. According to the public announcement for the open offer, the existing promoters are acting as the persons acting in concert.

SRS did not say why the existing promoters were being involved in the open offer. However, market circles felt that it could be due to the terms of the joint agreement which says that SRS will be jointly controlled by the existing promoters and WSH with both parties holding equal shareholding.

A press statement from the company said the current promoters would continue with the management of the company, with Wilmar being actively involved in strategic decisions.

After the open offer, SRS intends to come out with a rights issue where both Wilmar and the existing promoters will jointly participate. The rights issue is expected to raise up to Rs 725.4 crore.

According to the company, proceeds of this transaction would be used to pay down Shree Renuka Sugar’s existing debt in India.

The transaction is expected to improve SRS’s financial position and the induction of Wilmar will provide a further platform for growth. SRS added that Wilmar’s global reach and strong presence in key sugar producing countries would be synergistic to its business.

SRS has a portfolio of sugar assets in the country, including port-based refining assets, sugar mills and revenues also coming from ethanol and electricity co-generation. Additionally in Brazil, SRS has sugar, ethanol, cogeneration, port and logistics assets.

The company operates 11 mills globally with a total crushing capacity of 20.7 million tonnes per annum and two port-based sugar refineries with a sugar production capacity of 1.7 million tonnes annually.

“This would create a very strong partnership in some of the key global markets for sugar,” said Narendra Murkumbi, vice-chairman and managing director of SRS.

However, market circles were not enthused by the transaction as they felt that the deal price was cheap and tilted in favour of Wilmar considering the assets that SRS has. The price of Rs 20.08 per share at which the preferential offer is being done, marks a discount of over 10 per cent to the closing price of the Shree Renuka scrip today.

An analyst said he would not be surprised if the SRS scrip came under pressure on Friday since the price at which the deal had been struck had been lower than market expectations.