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Wilmar International, controlled by Indonesia’s Martua Sitorus, has agreed to buy CSR’s sugar unit for $1.5 billion as part of plans to expand domestic sugar sales.

Sydney-based CSR is the world’s second-largest exporter of raw sugar and Australia’s leading producer of sugar-based ethanol and renewable energy generated from biomass.

Buying Sucrogen will give Wilmar, the world’s largest palm oil trader, mills that produce 45 percent of Australia’s raw sugar and account for about 4 percent of global trade.

Wilmar chief executive Kuok Khoon Hong said the purchase would help his plans to expand sales in Indonesia and other Asian nations.

“They’ve been talking about growing their own plantations in Indonesia” to take advantage of rising demand, said Carey Wong, an analyst at OCBC Investment Research in Singapore. “This deal gives them a foot in the door a lot faster.”

Sugar refineries in Indonesia, Southeast Asia’s biggest buyer of raw sugar, will import 2.2 million tons this year, the Indonesian Refined Sugar Association said in January.

Wilmar beat China’s Bright Food Group’s bid for CSR, which is also Australia’s biggest refiner. Bright Food Group raised its initial conditional offer for CSR’s sugar unit to $1.75 billion Australian dollars ($1.48 billion) in April .

“A prominent investment bank had valued the business at A$1.5 billion, so this looks to be a very good price for shareholders,” said Ben Potter, a strategist with IG Markets. The deal provides “certainty after months of negotiations with Bright Food Group,” he said.

The Sucrogen sale was completed at an earnings before interest, tax, depreciation and amortization multiple of 9.7 times, CSR said.

That compares with a multiple of 8.8 times for the December 2008 acquisition of Spanish sugar business Azucarera Ebro by Associated British Foods.

Wilmar, whose 2009 profit rose to a record $1.88 billion as demand for vegetable oil soared in China, plans to enter the sugar milling and the cane plantation businesses in Indonesia, Kuok said in March.

The oilseeds and grains company has more than 300 processing plants in four countries.

About 40 percent of China’s bottled edible oil is supplied by Wilmar, and it may take advantage of this network to supply sugar to the world’s second-largest consumer, Wong said.

CSR was formed in 1855 and was known as the Colonial Sugar Refining company before changing its name in 1973 after an expansion into building materials and resource projects.

It sought to sell the sugar business to take advantage of a surge in prices last year after weather reduced output in Brazil and India.

“If for any reason the sale cannot be completed CSR may seek to proceed with a form of demerger,” the company said. It expects the deal to be completed by the fourth quarter.


Bloomberg