Wilmar International, the world’s largest palm oil manufacturer, has acquired a strategic stake in Shree Renuka Sugars Ltd for . 1,200 crore, helping the Murkumbi family-owned company to cut debts and forge a global alliance. 

 

The three-part transaction is structured in such a manner that the Singapore-based agribusiness major and the Murkumbi family will hold equal stakes varying between 27.5% and 37.5% in the company. 

 

The first leg of the deal will see Wilmar subscribing to 257.5 million preferential equity shares of Renuka Sugars at a price of . 20.08 per share for a total investment of about . 517 crore. After this transaction, Wilmar and the Murkumbhi family will hold 27.5% each in the company. 

 

The second step will involve an open offer for up to 26% of the expanded equity share capital of the company at a price of . 21.89 per share. Wilmar and the existing promoters of Renuka Sugars, will then jointly participate in a rights issue to raise up to . 725 crore. The pricing of the rights issue will be decided later. The promoters will subscribe to the unsubscribed part of the rights issue to maintain their equal stakes. ET reported on January 11 saying that a deal between Shree Renuka and Wilmar will be announced shortly. 

 

Motilal Oswal Investment Advisors acted as the strategic and financial advisor to Renuka Sugars, while Crawford Bayley & Co, AZB & Partners. Standard Chartered Bank acted as financial advisor and will act as a manager to the Open Offer. 

“Sugar business is very capital intensive. We are moving ahead of the times to build a strong strategic global partnership,” said Narendra Murkumbi, Vice-Chairman and Managing Director,Shree Renuka Sugars. 

 

    Analysts feel that though the deal will bring a fresh lease of life to the industry and help Renuka cut debt, it will not help in reviving the fortunes of the industry plagued by policy uncertainty created by the administrative pricing regime. 

 

“The deal certainly spells good news for Shree Renuka as it will help in reducing debts. But it does not lead to a rerating of the sugar industry as uncertainty will remain as policy related issues are still posing hurdles,” said Jagannadham Thunuguntla, Equity Head, Strategist & Head of Research, SMC Capital. As of today, the company has debt of . 3,700 crore which will go down to . 2,500 crore. Renuka reported a loss of . 374 crore for the year ended March 31, 2013. Its standalone losses were . 184 crore in the first six months ended September 30, 2013.