The Evergreen Fund, a British venture capital group seeking to invest in the emerging ethanol business in Brazil, plans to spend USD $77 million in new refineries in the country. This is in addition to their 2005 investment in the Alacana refinery in Nanuqe, in Minas Gerais state.

 

The company also stated that it is analyzing other assets in the same field. The fund plans to purchase at least one other refinery and to build a third in an undisclosed location.

 

Evergreen’s investments strengthen the growing foreign presence in Brazil's alternative energy industry.

 

At present, there are five international groups with direct investments in Brazil - Louis Dreyfus, Tereos, Adeco Agropecuaria, Evergreen, and Kidd & Company.

 

Kidd & Company is negotiating the purchase of Coopernavi, located in the state of Mato Grosso do Sul.

 

Together, these companies are responsible for 4.5% of total production of sugarcane ethanol in Brazil’s Midwest territory, an area second in size only to the Amazon region. This percentage equals 15 million tons of a total of 336 million tons in the 2005/06 harvest.

 

In comparison, Cosan (the largest sugarcane ethanol company in Brazil with sixteen refineries) has an 8.7% share (equivalent to 28.5 million tons) of sugarcane production in the Brazilian Midwest.

 

Cosan, which went public in late 2005, has itself sold shares to foreign investors. Of the company’s total capital, 58.4% is controlled by Rubens Ometto de Silveira Mello, the group’s president. 12.1% is divided among the French groups Tereos (6.3%) and Sucden (1.7%), and China’s Kuok (4.1%). The remaining 29.5% has been diluted through sale in the stock market to individual investors. 91% of these shares belong to foreigners, while 9% remain in Brazilian hands.

 

The recent increase in foreign participation is considered significant since the sector is fragmented into 320 sugar and ethanol refineries, according to Júlio Maria Martins Borges, president of Job Economia e Planejamento.  These small operations are easy targets for large groups with deep pockets.

 

The wave of mergers and acquisitions in the sector began in 2000. A survey carried out by KPMG shows that there have been 37 deals involving mergers and acquisitions between 2000 and 2005. The data do not take into account the sale of Acucareira Corona and the Mundial refinery, both sold by Cosan in 2005.

 

Over the last five years, investments in mergers and acquisitions have been estimated, at present value, at USD $3 billion. USD $1 billion of this involves foreign corporations. Mr. Borges, in a conservative estimate, believes that foreign groups will double their share over the next five years.

 

The first group to arrive was Louis Dreyfus (which controls Coinbra) when it acquired the Cresciumal refinery in Leme, Sao Paulo state, in 2000. Today, Louis Dreyfus has three refineries.

 

Tereos (formerly known as Beghin-Say), arrived in 2001 when it purchased Guarani Sugar, which has two plants in the interior of Sao Paulo state. The Tereos group recently announced a USD $100 million investment in a third refinery.

 

Mr. Borges believes that European groups have turned their attention to Brazil because of the country’s low production costs.

 

Market analysts consider it probable that Cargill and Bunge, two giants in the grains business, will enter the sugarcane ethanol business in the country during 2007, either through joint ventures or acquisition. Last year, Cargill announced that it was negotiating the purchase of Acucareira Corona, which has two plants in the country. However, these negotiations fell through and the company was sold instead to the Cosan group.

 

Analysts expect the world’s largest sugar producer, Sudzucker, will want to enter Brazil's burgeoning ethanol market in the not-too-distant future.