SAO PAULO, April 24 (Reuters) - A number of Brazilian sugar and ethanol firms still face tough financial conditions as heavy debt loads limit investments that could improve their returns, mills and consultants said on Monday.
While large groups such as Raízen, Biosev and São Martinho could tap alternative sources of financing, most mid-sized firms took on more debt over the last few years and are struggling to crush more cane, the experts said during F.O. Licht’s international sugar seminar in São Paulo.
Reberth Machado, chief executive of Bioenergia do Brasil SA, said his firm’s situation illustrates the industry’s current predicament. Its debt rose to 246 million reais ($78.6 million) from 157 million reais roughly three years ago.
Bioenergia decided earlier this year to stop paying its debt with banks and funds such as U.S.-based Amerra Capital Management LLC, said Machado, and sought restructuring talks with creditors.
“We had to decide what to do: pay banks or invest in planting. We chose to invest in cane planting,” he said, adding that banks such as Banco do Brasil and Banco Santander Brasil SA are close to agreeing on new terms for Bionergia’s debt.
Machado said many cane suppliers also had financial issues, or chose to plant other crops such as soybeans, decreasing the cane they could provide to Bionergia. In the new crop-year the mill will crush only 1.1 million tonnes of cane, about half its capacity.
“This is the reality of many mills,” said Jaime Finguerut, an independent consultant on cane industry management.
Finguerut said the indebtedness increases mills’ production costs and delays investments that would improve operations.
René Sordi, an advisor to the São Martinho group of mills, said the situation limits investments in capacity expansion in Brazil. “Companies are using prudence,” he said.
The recent decrease in raw sugar prices in New York was cited by Sordi as a new hurdle for Brazil’s mills as the new crop begins.
“We had expected a much better price for sugar than the current level,” he said.
Sugar trades in New York at around 16 cents per pound, after peaking around 23 cents late last year. (Reporting by Marcelo Teixeira; Editing by Richard Chang)