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Exclusive: Brazil mill Cevasa suspends loan payments, sources say
May 3, 2017 / 8:08 AM / 4 months ago

Exclusive: Brazil mill Cevasa suspends loan payments, sources say

SAO PAULO (Reuters) - A Brazilian sugar and ethanol mill in which Cargill Inc has a majority stake has suspended interest and principal payments on 700 million reais (170.4 million pounds) of loans during a shareholder rift over a capital injection, five people familiar with the matter said on Tuesday.

Central Energética Vale do Sapucaí Ltda is faced with a cash crunch due to surging costs and low ethanol margins, the people said. With a 63 percent stake in the mill known as Cevasa, Cargill has asked partners to join it on a capital plan or have their stakes diluted, three of the people said.

Management of Cevasa is equally shared between Cargill and sugarcane producers grouped in a company called Canagril. The failure of Cargill and Canagril to decide terms of the capital plan drove Cevasa to halt debt payments to some of Brazil's biggest lenders until a restructuring plan was devised, two of the people said.

Three of the people said Cevasa's lenders include Banco Bradesco SA, Banco Santander Brasil SA and Itaú Unibanco Holding SA, Brazil's largest bank. Another person said state-controlled Banco do Brasil SA was in the creditor group.

Cargill said in a statement it would not comment "on matters related to standalone companies that are not controlled by Cargill." Neither Cevasa, Canagril nor the banks were available for comment.

The people requested anonymity due to the sensitivity of the matter.

OWNERSHIP CHANGES

The situation underscores growing tension among shareholders of debt-laden Brazilian companies faced with looming debt maturities amid the harshest recession on record. In similar episodes recently, banks have demanded that borrowers put themselves up for sale as a condition to cut loan principal amounts or provide them with some debt relief.

Lenders say ownership changes could help them curb loan-loss provisions that drove their profits down last year for the first time since 2009. Last week, executives at Bradesco and Santander Brasil said provisions may fall slowly this year as corporate borrowers still face serious headwinds.

In March, Cargill proposed lenders a 300 million-real cash injection into Cevasa, but vowed to withhold the money until Canagril agreed to capitalize Cevasa, two of the people said.

Based in the town of Patrocínio Paulista in São Paulo state, Cevasa has annual crushing capacity of 2.5 million tonnes.

Many Brazilian sugar mills remain in dire straits, their finances under severe strain because of large debt loads accumulated over the past decade. Rising sugar prices over the past couple of years have failed to bolster their financial and cash position, industry leaders said.

Additional reporting by Marcelo Teixeira in São Paulo; Editing by Andrew Hay

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