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High energy prices fuel investor interest in Brazil’s idle biofuel capacity

Reuters . New York
09 Jun 2022 00:00:00 | Update: 09 Jun 2022 01:28:40
High energy prices fuel investor interest in Brazil’s idle biofuel capacity

High ethanol and sugar prices have investors looking into merger deals in Brazil, where a lot of idle biofuel capacity could be put to work to help boost tight global fuel and food supplies.

“Brazil is the Saudi Arabia of sugarcane, there is inexpensive unused capacity. That is the investor dream,” said Craig Tashjian, managing partner at U.S. investment fund Amerra, which has been expanding into Brazil’s sugarcane and corn-ethanol sector.

“I’m very positive about the investment opportunity there.”

Amerra holds stakes in six Brazilian companies including the country’s largest corn ethanol producer FS Bionergia. It has a 36per cent stake at holding company Tapajos, which owns 23.7per cent of FS.

Brazil is the world’s largest sugar producer and second largest in ethanol, but nearly 30per cent of its sugarcane crushing capacity is idle because of financial difficulties faced by smaller companies. Investors and bankers said numerous deals are being negotiated, with large companies hoping to snap up struggling smaller players that are running below capacity.

Henrique Penna, chief commercial officer at sugar & ethanol company Jalles Machado SA (JALL3.SA), which went public last year and made its first acquisition in May, said around 40 plants are being offered for sale.

“In the final stage of the (acquisition) process, we identified at least eight good targets,” he said, adding that current prices for sugar and ethanol have drawn sellers and buyers to the market.

Sugar prices are trading near a five-year peak, while ethanol prices in Brazil are near all-time highs.

Penna said Jalles is not looking for another mill for now, but said one of the plants they looked into, IACO Agricola, controlled by banker Andre Esteves and by the Grendene group, is being offered in the market by BTG Pactual.

Asked about the mandate, BTG Pactual declined to comment.

The last two years have improved companies’ financial situation after years of underperforming, due to higher prices, said Andre Cury, head of commercial banking for Citi in Brazil.

“EBITDA numbers rose a lot and they managed to cut debt. The companies are in a better shape now,” he said.

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