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Louis Dreyfus Commodities on Friday said it would raise up to $550m from the flotation of a stake of its Brazilian sugar unit, the latest sign that the publicity-shy commodities trading houses are moving to the public domain.
The decision to float Biosev, Brazil’s second largest sugar cane processor by volumes, marks the first time that Dreyfus has tapped the market in its 160-year history. The initial public offering comes as the trading house embarks on a $7bn spending programme, which is likely to include several acquisitions.
The flotation comes just a year after the landmark initial public offering of Glencore, the world’s largest commodities trading house by profits. However, Dreyfus has no plans to follow Glencore and float its main business, targeting just its Brazil unit.
In May, Serge Schoen, Dreyfus’s chief executive, told the Financial Times that the privately held house planned to tap the capital market to finance a planned a 40 per cent boost in investment over the next five years compared with the 2006-11 period. “We will be certainly making more acquisitions than we have done in the past,” he had said.
“We have a strong balance sheet, but we want to diversify our sources of capital,” Mr Schoen had said, adding that a flotation of its Brazilian subsidiary was possible.
Biosev was created in 2009 with the merger of Dreyfus’s sugar and ethanol assets in Brazil and Santelisa Vale, one of the largest local sugarcane producers and processors. The company, in which the commodities trading house controls roughly a 65 per cent stake, was initially known as LDC-SEV.
The terms of the transactions indicate that the IPO could raise up to R$1.14bn (US$562m). The offer is expected to be priced on July 18, with first trading on Brazil’s Bovespa main market expected around July 20, according to a prospectus published on Friday in Brazilian newspaper Valor Econômico. The prospectus did not specify the percentage that Dreyfus planned to sell.
Louis Dreyfus Commodities and its US-based rivals ADM, Bunge and Cargill are known in the industry as the “ABCD” group that dominates agricultural commodities flows. But a new generation of Asia-based traders is challenging their pre-eminence. The ascending group is known as the “Now” companies – Noble Group, Olam and Wilmar. In addition, Glencore and Marubeni of Japan are also expanding heavily into agriculture through the acquisition of Viterra and Gavilon, respectively.
The profitability of the agribusiness industry has increased over the past decade as global trade of food commodities such as wheat, corn and soyabean surged between 25 and 70 per cent on the back of booming demand in emerging countries such as China. The increase in demand, together with bad weather, has pushed the cost of agricultural commodities sharply up over the past five years, triggering in 2007-08 the first global food crisis since the 1970s.
Louis Dreyfus Commodities last year made after-tax profits of $735m, down 30 per cent from a record $1.05bn in 2010, hit by lower earnings in sugar. It reported sales of $59.6bn, up 29 per cent from $46.1bn in 2011.