Brazilian agribusiness still drawing investor interest

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Brazilian agribusiness has investors interested

The slump in commodity prices and the weaker real are attracting foreign funds interested in Brazilian agribusiness. International players want to place bets despite the political crisis, which some investors actually see as an even more fertile ground for deals.

The opportunities sought by US funds like Amerra Capital Management and Proterra, and by Brazilian funds such as Pátria, range from land deals to stakes in high added-value companies in animal health and input distribution. Although difficult to make, a conservative estimate would put the total invested so far at $2 billion at the least, according to company announcements.

Minneapolis-based Proterra, which counts Cargill among its investors, is one of the firms prospecting opportunities in Brazilian fields. The firm’s managing partner, Brent Bechtele, says farm projects in Brazil, Mexico and Colombia should attract about $200 million.

Declining to detail his targets, the executive says he is eyeing the sugar-and-ethanol sector, which Proterra joined in late 2015 with the purchase of two mills from Antônio Ruette Agroindustrial, a deal market sources valued at R$830 million.

But grains is where Proterra sees the biggest opportunities. The same weaker Real that made Brazil cheaper for foreign investors also unraveled dollar debts of producers and farm companies, opening investment opportunities in highly leveraged players. “It lowered the entry price for foreigners,” Mr. Bechtle says.

The firm could buy grain producers or even isolated lands. But the managing partner admits the challenges created by foreign ownership restrictions.

Attracting mostly domestic investors, Pátria Investimentos in late 2015 established a fund focused on land. It hopes to raise $300 million throughout 2016 and 2017 and tap what it sees as deal opportunities. The firm’s agribusiness partner, Antonio Wever, says the scenario for farmers – scarce credit, low commodity prices and higher production costs – made the land market attractive.

Pátria has been assembling a farm portfolio since 2011, whether in infrastructure or private-equity funds, and its agricultural assets already hold a 20% share of investments. The firm controls Agrichem (fertilizers), AC Café (which owns brand Café do Centro) and açaí producer Frooty. It partnered with Promom for an infrastructure fund that created Hidrovias do Brasil, a grain logistics provider whose first investment stage received R$1.5 billion.

Pátria turned to land acquisition more recently, in the wake of investor demand for joining the core of agribusiness: soybean, corn and cotton cultivation in the Brazilian Cerrado, a vast savannah bordering five states in the Central-West and Southeast regions. Mr. Wever says his investors are “sophisticated, they don’t care about turbulence but for long-term potential.”

Patrick Ledroux, a partner with British asset-management firm Actis, says many have started to eye Brazil, but it doesn’t mean deals are being closed. “Foreign investors don’t care if the economy is doing bad or it’s too corrupt – every country has corruption on a lesser or greater scale. What they do ask me is how are Brazilian institutions. If they are firm, that’s great. Because agribusiness is one of the few areas that still has good deals.”

Actis debuted in the sector with a stake in Genesis, a Paraná company offering testing, inspection and certification services for cattle growers. “We’ll announce a new deal soon,” Mr. Ledoux says.

Mr. Bechtle, with Proterra, says “the Brazilian farm sector faces widespread capital needs and has few sources.” This created an environment of “more favorable prices for Brazilian assets compared with the last few years, and more urgency on the selling side.”

Amerra doesn’t show interest in land investments in Brazil – at least for now. “We would rather invest in agribusinesses and team management, which can produce sustainable advantages in their markets,” says Craig Tashjian, a director and one of Amerra’s founders.

Mr. Tashjian says Brazilian farmers continue under “tremendous pressure” from production costs, which burn cash and fill the ranks of companies going bankrupt or delaying debt payments. Input producers and distributors, for their part, have been suffering from sales declines and tighter margins, he says. But this unfavorable combination may be resolved by eliminating bottlenecks and infrastructure investments. “Let’s not forget that despite the low-price environment and poor macroeconomic prospects, Brazilian agribusiness still reached growth levels between 1.5% and 2% in 2015,” he says.

Amerra manages $1.4 billion, but declines to disclose how much is in Brazil. In a prior interview with Valor in June 2014, Mr. Tashjian says the country responded for 40% of the portfolio, at the time at $1.2 billion, and was the main investment target.

Amerra has financed Tonon Bioenergia (now in bankruptcy recovery) and was also a creditor of Grupo Ruette, sold in December to American asset-management firm Black River, controlled by Cargill. Mr. Tashjian says Amerra “is still active” in the sugar-and-ethanol sector of Brazil. “When there’s a retreat, as happened with sugar in the last two years, the market goes through a correction, eliminating less efficient producers and presenting future investment opportunities,” he says.

Amerra is focused on lending but the firm also buys equity stakes – like 25% in Mato Grosso trading Fiagril. “The opportunity to invest in third-party equity supplies a first-hand vision of the company’s operations, its management capacity and strategic vision. And often presents private-equity opportunities for Amerra,” he says.

Fabiana Batista, Bettina Barros e Mariana Caetano; São Paulo

(Fonte:  Valor International)

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