A CONFIDENTIAL document is circulating through the sugar industry asking for expressions of interest to purchase a cornerstone 20 to 25 per cent stake in CSR's sugar business as a prelude to the planned demerger and float of the division.
British Sugar and Brazil's Cosan, the world's biggest sugar-cane processor, are both believed to be running the slide-rule over the sugar business. They could either become a major shareholder or even circumvent the demerger process and buy the entire business from CSR in a trade sale.
It is one of many options that face the CSR board as it moves closer to a March deadline to execute the demerger plan.
The document contains an advertising note, a detailed 10-page financial and industry summary of the group as well as the expressions of interest form which requires signatures and imposes confidentiality on all parties.
Attracting a major shareholder to the register that also has an existing presence in the sugar industry would help buttress CSR Sugar's balance sheet and shore up investor confidence in the new vehicle as it kicks off its public life free of the 154-year-old protective CSR conglomerate.
CSR currently has group debt of $1.2 billion which must be rationed out to the new companies that will emerge from the demerger process. Some analysts have forecast CSR Sugar could start its corporate life with about $400 million of debt.
A new cornerstone investor could inject up to $250 million into CSR Sugar in return for the commanding stake. Any deal would have to be approved by CSR shareholders.
When the demerger proposal was first announced last month analysts immediately flagged their concern the sugar company could be saddled with too much debt to withstand volatile international sugar prices and the direct impact of gyrations in the commodity on earnings and profitability.
Between 1990 and 2009 CSR Sugar's earnings before interest and tax ranged from as high as $191 million to as low as $16 million with a standard deviation of $41 million.
CSR's diversified business, which takes in sugar, renewable energy, building materials, property and aluminium, has helped smooth out volatile sugar earnings to reduce earnings risk for the overall conglomerate.
Only a few years ago the sugar price plunged to a record low and to a level that proved uneconomical for many canegrowers and millers. However, the current outlook for the commodity is bullish.
Prices have recently rallied to a three-year high due to fears of a production deficit caused by dwindling Indian output and a decision by many Brazilian producers to switch their sugar supply into ethanol.
The projected world sugar deficit for 2008-09 is expected to be 7.8 million tonnes and world production is set to decline by 10.7 million tonnes over the same period.
At CSR's annual meeting last week its managing director, Jerry Maycock, said growth in sugar earnings would outweigh slightly lower aluminium earnings.
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