Don't expect too much yet from Wilmar's Moroccan venture: analyst

Near-term impact likely to be muted.

According to OCBC, Wilmar International Limited (WIL) has acquired a strategic 27.5% stake in Cosumar SA – a Morocco-based sugar producer; Cosumar is also the sole sugar supplier in Morocco and the third largest sugar producer in Africa.

WIL intends to focus the MAD2.3b (US$263m) acquisition with internal resources and bank borrowings. Based on its FY12 balance sheet, WIL has a total liquidity of US$15.1b available, with cash of US$1.5b and unutilized credit facilities of US$13.5b.

Here's more from OCBC:

According to management, Morocco is an attractive investment destination with a stable and resilient economy, plus the regulated sugar industry offers steady growth.

WIL further believes that Cosumar provides the group with the opportunity to service a large and growing structural deficit in sugar in Morocco and the surrounding regions of Southern Europe, Northern and Western Africa.

WIL has been growing its sugar business rapidly since 2010 – it now operates five sugar refineries across Australia, New Zealand and Indonesia with an annual production volume of >1.8m MT.

While we see the latest acquisition dovetailing nicely with WIL’s strategy of becoming a global sugar player, the near-term impact is likely going to be muted by still-weak sugar prices.

Industry experts note that there is still a large statistical surplus on the world market and global sugar prices could fall further this year.

Nevertheless, sugar experts believe that Asia will now be the engine for consumption growth, noting that the average level of sugar consumed in China is still very low at 10-11kgs compared to 24kgs globally.

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