11:09 (GMT +7) - Saturday 25/11/2017

BUSINESS SPOTLIGHT

Sugar industry forecast to grow strongly

Released at: 14:45, 26/05/2017 BUSINESS SPOTLIGHT

Sugar industry forecast to grow strongly

Photo: TTC Group

A host of factors will assist Vietnam's sugar industry to compete both regionally and internationally.

by Ngoc Chi

The roadmap for ASEAN Free Trade Area (AFTA) tariff commitments will begin from 2018, when the import management of sugar products by quotas will be removed and import and export tariffs on all types of sugar will gradually fall from 80 per cent to 5 per cent and be zero by 2020.   

Under pressure from increasing competitive capacity, Vietnamese sugarcane enterprises must strengthen internally to integrate and develop. 

According to information from the Vietnam Sugarcane & Sugar Association (VSSA), as at mid-May, local sugar production in 2016-2017 was estimated at nearly 1.1 million tons of pressed cane and over 210,000 ton of refined sugar.

Smuggled sugar remains a problem and is difficult to control. When China, the largest source market for sugar, cuts production dramatically it will affect sugar inventories, which are at their highest levels for five years.   

In 2016-2017, according to experts, pressure from an increasing global sugar market will result in Vietnamese sugarcane enterprises restructuring the industry.

In this restructuring, most enterprises will choose partnerships in order to develop. Over the last five years the investment trend of enhancing production has been the primary solution for enterprises to develop their scale of operations and there is a smart mechanism: merger and acquisitions (M&As).

Many sugarcane refineries have had to cease operations in the last three years and Vietnam’s sugarcane industry has seen successful M&A deals among enterprises.

Following the last two harvests, refineries have undergone M&A deals, partnerships for developing together have become stable, and difficulties have been removed regarding raw material areas, utilizing the advantages from M&As.

The Thanh Thanh Cong Tay Ninh Sugarcane JSC (TTCS) and the Bien Hoa Sugar JSC (BHS), members of the TTC Group, have officially completed a merger. 

The TTC Group held an extra-ordinary general meeting for 2016-2017 to approve its merger policy and plans to exchange all existing BHS shares with additional shares of TTCS (stock code SBT) on the stock exchange, on May 25 and 26.

BHS shareholders will receive SBT shares at a ratio of 1:1.02, where shareholders with one BHS share will swap them for 1.02 SBT shares.

SBT therefore plans to issue 303.83 million shares to swap for 297.87 million BHS shares. After the exchange, SBT will become the sole owner of the Bien Hoa Sugar JSC.

Shareholders also approved an increase in TTCS’s charter capital to a maximum of $134 million, corresponding to the value of the number of additional shares issued.

As a result, shareholders of both companies will receive direct benefits when performance improves post-merger due to factors such as continuously developing market shares, cutting costs in similar functions, increasing revenue, enhancing financial strengths that boost the value of the business, and increasing equity and stock liquidity.

The meeting also passed other important matters, such as a draft contract for the M&A and business plan, a plan to list the additional shares, the addition of business lines, and a draft charter post-merger, among others.

After the exchange, BHS will register to convert into a one-member limited company called the TTC Bien Hoa - Dong Nai Limited Company.

At the same time, TTCS and BHS will continue to conduct normal business operations and the reorganization and conversion of BHS’s business type will be authorized by TTCS’s Board.

Post-merger, TTC has set a target for consolidated revenue of $368 million and consolidated pre-tax profit of $30 million for the 2017-2020 period, and expects the TTC Bien Hoa - Dong Nai Limited Company will reach targeted revenue of over $206.5 million and targeted pre-tax profit of $14 million in 2017-2018.

The strategic move will also contribute to the sustainable development of TTCS’s raw material area. It currently owns 25,000 ha of sugarcane area and BHS owns 15 ha, excluding the large sugarcane area purchased by TTCS and BHS from the Hoang Anh Gia Lai Sugar Limited Company (HAGL Sugar).

With material areas accounting for over 80 per cent of production costs, this is a positive step by TTC in bridging the gap between Vietnam’s sugar industry and other countries and allowing it to supply clean sugar, contributing to the development of clean and green food in the country and confirming its status as one of the 50 best value brands in Vietnam.

In its 38 years, TTC has always led in real estate, energy, sugarcane, agriculture, and other sector, leveraging its value chain and impacting positively on the market. 

It is hoped that its suitable scale to compete with other enterprises and increased effectiveness after the merger will result in a new appearance for Vietnam’s sugarcane industry.

To develop in the long term and in particular to quickly narrow the gap with sugarcane enterprises in developed countries, such as Thailand, Vietnamese sugarcane enterprises need to be stable and move beyond the domestic market.

After conducting successful mergers, many Vietnamese sugarcane enterprises with small equity and low operational levels must still determine what scale is best and what mechanisms are needed to compete and develop sustainably. The country’s sugarcane enterprises are weaker than those in developed countries regarding equity and operational areas, so opportunities for partnerships and capital investment attraction are limited.

 

 

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