Louis Dreyfus Commodities said on Friday it would raise up to $550-million (U.S.) 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 $7-billion spending program, which is likely to include several acquisitions.
The flotation follows the landmark initial public offering of Glencore, the world's largest commodities trading house by profits, last year. 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 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 said. "We have a strong balance sheet, but we want to diversify our sources of capital," Mr. Schoen added, pointing to a potential flotation of Biosev.
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.
Under the terms of the transaction, Biosev will offer an initial lot of about 41.2 million common shares priced between $16.50 (Brazilian) and $20.50 each, followed by two additional offerings of 14.4 million shares, meaning the IPO could raise as much as $1.14-billion ($548-million U.S.). The offer is expected to be priced on July 18, with first trading on Brazil's Bovespa main market on July 20, according to a prospectus published on Friday in Brazilian newspaper Valor Economico.
JPMorgan, Santander and Brazil's biggest banks will manage the offer, according to the prospectus. It did not specify the percentage that Dreyfus planned to sell.
Biosev's listing would rank as the second-biggest IPO this year in Brazil, where many companies have struggled to come to the market due to uncertainty over the eurozone crisis. Only three companies have gone public in Brazil so far in 2012, compared with 11 last year and more than 60 in 2007, according to Dealogic.
Louis Dreyfus Commodities and its US-based rivals ADM, Bunge and Cargill are known in the industry as the "ABCD" group that dominates food 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 agricultural 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, Egypt, Saudi Arabia and India.
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 $735-million, down 30 per cent from a record $1.05-billion in 2010, hit by lower earnings in sugar. It reported sales of $59.6-billion, up 29 per cent from $46.1-billion in 2011.