Bloomberg News

Vietnam's Biggest Sugar Mill May Boost Stake in Ally

April 10, 2012

Societe de Bourbon Tay Ninh, Vietnam’s biggest listed sugar company, plans to buy more shares in the country’s No. 3 producer to boost its refinery utilization rates as materials and borrowing costs rise.

The company owns 23 percent of Bien Hoa Sugar Joint-Stock Co. and may issue bonds or sell new shares to finance an additional stake purchase as early as this year, General Director Nguyen Ba Chu said in an interview. Bourbon hasn’t decided on the stake size or a more precise timeframe, he said.

A stronger relationship with Bien Hoa may help Bourbon increase supplies of raw sugar amid higher expenses that have forced the company, based in southern Tay Ninh province, to cut its profit estimate by 13 percent. Chu said costs of buying sugar cane from the current crop have climbed as much as 15 percent from a year earlier, while interest expenses are rising.

“Consolidating plants would help avoid the situation in which companies fiercely compete for sugar cane, so prices will be lower and more stable,” Nguyen Trung Hoa, a Ho Chi Minh City-based analyst at Kim Eng Vietnam Securities Co. with a buy rating on Bourbon (SBT), said by telephone. “There is potential to combine sugar plants in the south.”

Bourbon’s plant in Tay Ninh province refines about half the raw sugar Bien Hoa produces at its mill in the same province, and tighter cooperation may gradually lead to the larger company processing as much as 80 percent, Chu said by telephone in Tay Ninh. He didn’t specify whether Bourbon would buy the shares from the open market or from major stakeholders.

‘Win-Win’ Deal

Increasing the Bien Hoa stake would be “a win-win situation,” Chu said. “Mergers and acquisitions among sugar companies would give them scale, cut costs and boost their ability to compete in the international market as they seek export opportunities in the next few years.”

The No. 3 producer ships the remaining half of the raw sugar output from its plant in Tay Ninh to its Bien Hoa refinery in Dong Nai province, about 100 kilometers (62 miles) away for processing.

“We welcome any investors who want to put money in,” Bien Hoa Chairwoman Pham Thi Sum said by telephone. “We hope any new investment will help Bien Hoa develop our sugar plant in Tay Ninh province.”

Bien Hoa invested about 100 billion dong ($4.8 million) in its plant in Tay Ninh province to boost capacity to 4,000 tons of sugar cane a day in the 2011-2012 crop year, from 3,500 tons previously, Sum said. It will invest 60 billion dong this year to increase capacity to 4,500 tons a day and upgrade equipment to produce refined sugar from the next cane crop, she said.

Under-Utilized Mills

Capacity utilization at Vietnam’s sugar mills ranges from about 50 percent to 70 percent, according estimates by Hoa of Kim Eng.

“We run our factory at 100 percent capacity, with 9,000 tons of sugar cane processed per day,” said Chu. “In sugar production, there are a lot of steps. If we don’t meet our capacity of 1,000 tons of sugar in finished form per day, we have room to bring in raw sugar from outside for refining.”

Bourbon cut its target for 2012 net income to 350 billion dong compared with a 400 billion dong projection in January because of increases in costs for materials and borrowing, Chu said. Profit was 553 billion dong last year.

Shares Gain

Bourbon gained by the daily limit of 5 percent to 16,800 dong at the close of Ho Chi Minh City trading yesterday. The shares have climbed 39 percent this year, compared with a 28 percent advance for the benchmark VN Index. (VNINDEX) Bien Hoa rose 2.1 percent yesterday, while Lam Son Sugar Joint-Stock Co., Vietnam’s second-biggest listed producer, fell 1.8 percent.

Bien Hoa has a market value of about 585 billion dong, making Bourbon’s stake worth 135 billion dong, according to data compiled by Bloomberg. The stock trades at 4.4 times estimated earnings, compared with about 5.1 times for Bourbon, the data show.

Bourbon had about 215 billion dong in cash, near cash and short-term investments as of Dec. 31, compared with 267 billion dong a year earlier and a five-year average of about 273 billion dong, according to data compiled by Bloomberg. The company may use retained earnings to pay for an additional stake in Bien Hoa, Chu said.

The central bank cut the key refinancing rate by 1 percentage point to 14 percent from March 13, the first reduction since 2009, and trimmed the repurchase rate by 1 percentage point to 13 percent.

“Even though lending rates have gone down, we’re still paying 16 percent,” said Chu. “Double-digit rates are still causing a lot of difficulties to businesses.”

Domestic sugar prices are likely to extend declines that started earlier this year, Nguyen Hoang Bich Ngoc, an analyst at Sacombank Securities Joint-Stock Co., said by telephone. Average prices may drop by as much as 7 percent this year from the previous 12 months, she said.

To contact Bloomberg News staff for this story: Diep Ngoc Pham in Hanoi at

To contact the editor responsible for this story: K. Oanh Ha at

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