SAO PAULO (Dow Jones)--ETH Bioenergia, the energy unit of Brazilian conglomerate Odebrecht, remains on track to build three new greenfield sugar and ethanol mills by July and should secure new debt financing by early December, ETH Bioenergy's president said Monday.
"Despite the financial crisis we haven't changed our business case and we aim to reach from 45 million metric tons to 50 million tons of sugarcane crushing capacity by 2015-16," Jose Carlos Grubisich told Dow Jones Newswires in Sao Paulo.
ETH Bioenergy is currently in the process of crushing 3.6 million tons of sugarcane at its two existing mills in Sao Paulo and Mato Grosso do Sul states. This should rise to about 5.6 million tons in 2009, Grubisich said.
The three new mills will have the annual capacity to crush 2 million tons of sugarcane each in 2009 and will be gradually expanded to crush up to 5.5 million tons each per year.
Although the BRL6 billion expansion plan is partially financed by shareholders Odebrecht and trading company Sojitz Corp. (2768.TO), ETH Bioenergy is about to finalize a loan of between 1.2 billion Brazilian reals ($516 million) and BRL1.5 billion from Brazil's national development bank BNDES by the end of November or early December, he said.
ETH Bioenergy in 2009 will also look for new lines of credit from international lenders such as the Japan Bank for International Cooperation, or JBIC, building on its ties with Sojitz, said Grubisich.
The energy company also plans to reach a total of 10 mills across Mato Grosso do Sul, Minas Gerais and Sao Paulo states by 2015-16.
ETH Bioenergy aims to match long-term projects with long-term debt, so that its debt comes due when the projects are already generating revenue. ETH Bioenergy doesn't intend to make the mistakes of some sugar and ethanol companies that have short-term debt maturing before the companies are generating cash, thus causing serious difficulties, Grubisich added.
Indeed, many Brazilian sugar and ethanol mills are facing severe credit problems and specialists expect a wave of merger and acquisition activity in the near future. For example, sugar and ethanol company Albertina recently became the first Brazilian mill to enter bankruptcy proceedings, similar to a U.S. Chapter 11 filing, Another group, Naoum, with three sugar and ethanol mills, is the latest to enter bankruptcy proceedings, local newspaper Valor Economico reported Monday.
Grubisich said that the financial crisis has sped up consolidation in the Brazilian sugar and ethanol sector that was likely anyway with many small family-owned mills being unable to survive. The consolidation is likely to take place in the next two years rather than three to five years as expected, he said.
Moreover, ETH Bioenergy is talking with various companies about acquisitions or alliances. These companies range from those that don't have credit lines, through to companies who invested in greenfield projects and couldn't get the money they needed, or standalone mills that want partnerships or to divest, he said.
"There are many opportunities in the market and we're looking at them one by one," Grubisich said, without giving details.
Although ETH Bioenergy is reported to be in talks with sugar and ethanol producer Nova America - one of those mid-sized mills in question - Grubisich downplayed the issue and wouldn't give any details.
Despite the financial crisis, Grubisich remains confident that the ethanol sector should continue to grow due to more flex-fuel cars using ethanol and new projects related to petrochemicals in Brazil.
ETH Bioenergy expects ethanol prices to increase to near BRL1.1 per liter by April from around BRL0.90 at the moment.
Grubisich said ethanol mills can break even with oil at $45 per barrel in the local market. Crude oil at the New York Mercantile Exchange was trading around $54 a barrel on Monday.
ETH is the ethanol subsidiary of conglomerate Odebrecht, known for its petrochemical and heavy construction businesses. ETH was created in July 2007 and is privately held.
Brazil's is the world's No. 1 producer of sugarcane-based ethanol.
-By Tony Danby, Dow Jones Newswires; 55-11-2847-4523; brazil@dowjones.com