IKAR in Mass and Industry Media

Razgulay seeks Russian sugar consolidation

Reuters

MOSCOW, Nov 19 (Reuters) - Razgulay , Russia's third-largest sugar producer, is in talks with rivals to merge assets and close down inefficient refineries as the country prepares for a fall in next year's sugar beet crop.

General Director Alexander Soldatov said Razgulay was in frequent contact with Russia's top producers, including market leader Prodimex Group, about consolidation in the sugar sector, but crisis-hit banks were not yet prepared to finance deals.

"All the major players are planning to participate in this process, but the banks are not ready to finance it," Soldatov told Reuters in an interview on Wednesday.

"The idea is not to create a monopoly on prices. This will never happen. Rather, it's to close small and inefficient refineries to be more competitive."

The European Union in October overtook Russia as the world's largest raw sugar buyer as a result of a one-quarter drop in Russian imports this year and price-slashing reforms in the European Union.

Global sugar prices, which soared in early 2008 as funds built up huge holdings in futures, have declined in line with other soft commodities as the funds sold out to raise cash for redemptions.

Soldatov said sugar had been the Russian farm sector worst hit by the financial crisis and cash-strapped farmers would not be able to sow as much beet next year as in previous seasons.

Razgulay, Russia's biggest publicly traded agricultural firm, was operating all 10 of its sugar refineries this year, Soldatov said on the sidelines of the Adam Smith Institute's Russian Food and Beverage Forum.

"In 2009, I'm not sure we will put all of our refineries into operation as there will probably be a reduction in raw materials, sugar beet," he said. "Not all farmers will sow as much as last year, as they won't have the money."

Russia is forecast to refine 3.05 million tonnes of sugar from this year's beet crop, slightly less than last year, the Institute of Agricultural Market Studies (IKAR) has said.

CUTTING INVESTMENT

Razgulay, which earlier planned to invest $690 million this year and next into tripling its land area and developing its plants, has reined in its spending plans, Soldatov said.

Igor Potapenko, the company's president, said on Oct. 21 it would upgrade only four of its 10 sugar refineries and halt plans to build five grain elevators as it froze investment projects worth 5 billion roubles ($182.3 million).

"We have started to look at what's necessary for the 2009 budget and replacing superfluous equipment," Soldatov said.

Razgulay had net debt of 17.2 billion roubles ($627 million) at the end of June. First-half net profit almost doubled to 736 million roubles due to higher revenues from grain sales, but the second half of the year is set to be tougher.

Razgulay has exported over 1 million tonnes of grain this year, Soldatov said, but would not be adding to this quantity before the end of 2008.

"It's not profitable. There's no point in exporting," he said. "The world has over-produced and world prices are low."

Russia expects to have harvested over 100 million tonnes of grain this year, a 15-year record, and Agriculture Minister Alexei Gordeyev forecasts exports in the season to June 30, 2009 to reach 20-25 million tonnes.

For this target to be realised, Russian exporters need government support to counter the high cost of delivering grain from farms and elevators to the country's ports, Soldatov said.

"It's in the government's power," he said.

Deputy Agriculture Minister Andrei Slepnyov said later on Wednesday that Russia was prepared to lower rail tariffs on grain destined for export to help suppliers weather the crisis, RIA Novosti news agency reported.

RIA Novosti quoted Arkady Zlochevsky, president of the Russian Grain Union, as saying this could save exporters 500 roubles ($18.22) on every tonne of grain shipped.

29.12.08

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