Fiagril negotiates sale of minority stake to Chinatex

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Men level soybeans at the Fiagril Agromercantil plant in Lucas do rio Verde, Mato Grosso state, Amazon, Brazil on Sept. 20, 2008. (Photo: John Stanmeyer)
Note: Fiagril, through its subsidiary Serra Bonita Sementes, produces soybean seeds on 17,000 ha in the State of Minas Gerais.

Valor Econômico S. A. | 24 October 2014

Fiagril negotiates sale of minority stake to Chinatex

Fiagril, a Mato Grosso company operating in the trading and processing of grains, is negotiating the sale of a minority stake to an Asian company also from the agribusiness sector. The stake is being valued at R$400 million to R$500 million and Valor has learned that Chinatex, a state company engaged in the purchase of cotton and grains, is the strongest suitor.

If confirmed, the transaction will mark the debut of the Chinese company in Brazilian assets and the second partnership change undertaken by Fiagril in a few months.

Facing difficulties to develop its projects, Fiagril resorted in March to Amerra Capital Management, an American fund manager that snapped up a 25% stake in the Brazilian trading firm. At the time, Craig Tashjian, director and a founder of Amerra, said the rise in grain prices in recent years restricted the company’s ability to use its own equity to proceed with strategic investments – and created the need for a partner who could inject capita.

Thus Amerra, which had already made loans to Fiagril, joined the business. But the fund’s profile is not to hold stakes, so a six month-to-three-year deadline to leave the company was agreed. And this is how the new partner joins the fore.

A source familiar with the matter told Valor there is “a small group” of Asian companies participating in the negotiation. Another source, also with knowledge of the transaction, explained that Chinatex is the potential investor holding the more advanced talks with Fiagril. The indication is that the new partner will buy the shares of Amerra and possibly an additional amount. But it hasn’t been decided whether Amerra will leave the business completely or keep a small portion of the shares it holds today.

Founded in 1989, Fiagril got its start marketing inputs but soon launched an accelerated diversification of activities. It began trading soybeans and corn a decade ago and more recently invested in seed production, storage and logistics – which required heavy investments.

One of the biggest bets of Fiagril is the logistics corridor in the North of the country, where the company is dedicated to structuring Cianport, created in 2012 in partnership with grain trading Agrosoja. With an estimated R$360 million investment, Cianport will carry grains from a terminal in Miritituba, Pará, to the port of Santana, in Amapá. The project is expected to commence operating in the second half of 2015, initially moving 500,000 tonnes and potentially reaching up to 3.5 million tonnes in 2018.

The expectation is that the Asian partner, besides supporting logistics investments, could help pave the way abroad for Fiagril. The trading company exports only 20% of the grains it originates – the other 80% stay in the domestic market. People familiar with the situation say the company intends to reverse this scenario within five years, leaving its future “more focused abroad than domestically.”

Founded in 1951, possible investor Chinatex is dedicated to the production, processing and marketing of grains and fibers. The state company began acquiring soybeans in Brazil in 2003, with greater operating aggressiveness in the South, but the interest grew. For some time it considered setting up a branch in São Paulo, a project that has not progressed.

Chinatex representatives made two trips to prospect businesses in the country recently. On one such occasion, in July, the Chinese traveled to Rio Grande do Sul seeking partnerships with state cooperatives. Information published by the state government show that the Chinese government buys about 2 million tonnes of soybeans annually from Brazil. China is the world’s largest importer of the oilseed, with an expected 74 million tonnes in the current crop year 2014/15, according to data from the United States Department of Agriculture (USDA).

A senior industry source said that Fiagril still has to solve financial problems, despite the recent contribution of the American fund. “The company has a good size, but it’s not profitable. It has volume, but does not make money,” the person says. Another source says that seeking a partner “was something predictable, since the company entered into many new business areas.”

Fiagril is still trying to raise funds from another US fund to move forward with a plan of building a corn ethanol plant in Lucas do Rio Verde. According to the American press, the US Farmland Fund, the equity arm of the Summit Group, is negotiating with the Brazilian company a $140 million injection to implement the plant, which has capacity to crush 500,000 tonnes of maize per year, enough volume to produce up to 200 million liters of biofuel.

Headquartered in Lucas do Rio Verde, Fiagril moves between 2.5 million and 3 million tonnes of grain per year, with revenues of about R$2.75 billion. Fiagril and Amerra declined to comment.
Original source: Valor Econômico
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