Bunge Weighs Bond Sale to Finance $2.5 Billion of Brazil Sugar Investments
Bunge Ltd. (BG), the world’s second- largest sugar trader, said it plans to spend $2.5 billion to boost sugar and ethanol production in Brazil over the next five years and may sell bonds to help finance the investments.
“We are very positive on the sugar and ethanol outlook,” Chief Executive Officer Alberto Weisser said at a press conference in Sao Paulo. “Our investments come at the right moment, as the world is yearning for food and clean energy.”
Bunge plans to invest the cash between next year and 2016 to boost capacity at eight mills in Brazil, the world’s largest sugar producer and exporter. The plan will boost sugar-cane crushing capacity to 30 million metric tons a year from 21 million tons, according to the White Plains, New York-based company. Sugar and ethanol capacity will grow by almost half.
Sugar prices jumped 50 percent in the past year after a drought and freezing temperatures in Brazil’s Center South cut output of sugar-cane, which is turned into sugar and ethanol, for the first time in a decade. Ethanol prices rose 11 percent.
The sugar and so-called bioenergy business are a “priority” for the company, said Weisser, who is targeting sales growth of 8 percent to 10 percent a year over the next five years, the fastest among all the four areas where Bunge is active. The others are fertilizer, food & ingredients and agribusiness, according to a July 28 company presentation.
The company is investing $350 million this year in Brazil, mostly to replant and plant new sugar cane fields, Bunge Brazil CEO Pedro Parente said. It is planting about 70,000 hectares of land, an area about the size of Chicago.
Bunge’s eight Brazilian mills may be further expanded to crush 40 million tons, Parente said. “After we conclude our current investment plan, we may consider further expanding the mills,” he said. “Green fields are not economically viable.”
Building new mills is also not viable partly because of the valuation of Brazil’s real, Weisser said. “It is cheaper to produce U.S. corn-based ethanol than Brazilian cane-based fuel,” he said.
The Brazilian real has gained 9.2 percent against the dollar this year, the second-best performer among 17 major currencies tracked by Bloomberg.
Bunge expects to crush about 15.5 million tons of sugar cane this year, down from an earlier estimate of 16.5 million, because of adverse weather in Brazil’s Center South, the world’s largest producing region of sugar, it said.
Rising demand for automobiles in Latin America’s largest economy, where cars run on a blend of ethanol and gasoline, is boosting demand for ethanol. So-called flex-fuel cars account for about 50 percent of Brazil’s fleet, according to the country’s car manufacturers’ association, known as Anfavea. The remainder run on gasoline.
Bunge may expand port terminals capacity in Brazil “if necessary,” Parente said. “We are constantly analyzing the bottlenecks of the business,” he said.
Bunge may also consider producing corn-based ethanol in Argentina, Weisser said.
Bunge fell 63 cents, or 1 percent, to $60.18 as of 2:11 p.m. in New York Stock Exchange composite trading. The stock has declined about 7.2 percent this year.
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