Olam divests 50% stake in unit to Asia's largest sugar producer for US$100m

MITR Phol Sugar Corporation, the world's fourth-largest and Asia's largest sugar producer, will invest US$100 million in a 50 per cent stake in Olam International's wholly owned subsidiary, Far East Agri.

According to agribusiness Olam's announcement on Monday, this is to capitalise on the "attractive growth opportunities" for sugar milling and refining in Indonesia.

"The transaction releases cash for Olam to deliver improved free cash flow and pursue profitable growth in prioritised businesses," it added.

Far East Agri operates a sugar refinery in Indonesia - PT Dharmapala Usaha Sukses in Cilacap, Central Java. Olam will retain the remaining 50 per cent stake in Far East.

Joe Kenny, managing director and CEO for Sugar & Dairy, Olam International, said: "Our potential expansion into sugar milling will transform our overall participation in Indonesia's sugar industry, which offers attractive investment and return opportunities due to its growing demand and persistent supply deficit.

"(Mitr Phol's) strong sugar milling expertise coupled with our farm gate, sourcing and manufacturing capabilities will enable us to cater to the growing demand for sugar in Indonesia."

Under the new agreement, Far East will explore the development of a green-field sugar milling facility in East Java. Upon completion in 2020, the sugar mill will source 1.2 million tonnes of cane from farmers.

The transaction is expected to be completed by end-December 2017. It will also generate a one-time gain of about US$80 million based on the written-down carrying value of the assets for the financial year ending Dec 31, 2017.

In addition to the joint venture, Mitr Phol will join Olam's programme of extending Good Agricultural Practices to farmers across Indonesia, which have been in place since Olam entered the country in 1996.

In a separate announcement, Olam reminded holders of warrants that accompany the US$750 million of 6.75 per cent bonds due 2018, that the right to exercise them and subscribe for new shares will expire on Jan 29, 2018 at 5pm.

The number of warrants in issue as at Dec 14, 2017 is about 55.7 million at an adjusted exercise price of US$1.09.

Each warrant carries the right to subscribe for one new share in the capital of the company at an exercise price of US$1.291 for each new share. The company has fully redeemed the bonds.