Bunge and BP team up in Brazil bioenergy venture, create No. 3 sugarcane processor

Bunge and BP team up in Brazil bioenergy venture, create No. 3 sugarcane processor
# 23 July 2019 06:39 (UTC +04:00)

U.S. commodities trader Bunge Ltd (BG.N) and British energy company BP Plc (BP.L) said on Monday they will merge their Brazilian sugar and ethanol operations to create the world’s third-largest sugarcane processor, APA reports citing Reuters.

The joint venture is the largest deal in Brazil’s bioenergy sector since Royal Dutch Shell (RDSa.L) joined forces with Cosan (CSAN3.SA) to form industry leader Raízen in 2011.

Together, Bunge and BP will manage 11 cane processing plants in Brazil with capacity to crush 32 million tonnes of cane per year, putting them behind just Raízen and Biosev, which is controlled by commodities trader Louis Dreyfus.

The deal gives BP a role in Brazil’s booming ethanol market ahead of a new federal policy next year aimed at boosting use of biofuels, which are used interchangeably with gasoline in Brazilian passenger cars.

“Brazil is the Saudi Arabia of biofuel,” BP’s head of Alternative Energy, Dev Sanyal, told Reuters. He added that the new venture was cash-flow positive.

Bunge said it will receive cash proceeds of $775 million as part of the agreement, which it expects to use to cut debt.

But the company said in a U.S. filing that it is planning a third-quarter impairment charge “in the range of $1.5 billion to $1.7 billion” related to the “cumulative currency translation effects” of its business in Brazil.

Bunge shares opened up more than 3% higher in New York before reducing gains to 1.4%. BP rose 0.3% in London.

The U.S.-based company has tried to sell its sugar operation in Brazil in the past with no success. It then tried listing shares of the unit in Sao Paulo last year, but canceled the plan, citing adverse market conditions.

Bunge sold its sugar trading business to Wilmar International Ltd last year. Its bioenergy unit posted losses in five of the past six quarters and the company forecast results for the unit would be roughly break-even in 2019.

“This partnership with BP represents a major portfolio optimization milestone for Bunge which allows us to reduce our current exposure to sugar milling,” Bunge CEO Gregory Heckman said in a statement.