Savola to pour $100mn into agribusines

SECURING SUPPLIES: Savola is looking to invest in the Ukraine, Brazil or Egypt, Baroum said. (Getty Images)

Saudi Arabia's Savola Group said on Monday it planned to spend at least $100 million to buy stakes in agribusiness firms in Ukraine, Brazil or Egypt to secure sugar and edible oil supply.

"It is to improve our margin and manage volatility," Chief Executive Sami Baroum told newswire Reuters in an interview at the World Economic Forum (WEF).

"When your downstream margins are squeezed, your upstream can make more money and in some areas there's scarcity," he said without elaborating.

The target companies would buy land and develop agriculture infrastructure to grow beet sugar, rice and other commodities to produce edible oils such as sunflower, corn and canola, Baroum said.

"We are talking about investments of hundreds of millions of US dollars and tens of thousands of hectares," Baroum said.

"We are looking at Egypt, Sudan, Ukraine and Ethiopia... We are [also] considering Brazil," he said.

Baroum said earlier this month his company was in advanced talks with two partners from Russia and Ukraine to invest in oilseeds crushing in Ukraine.

The company is the world's largest producer of branded edible oils and the Middle East's largest sugar refiner.

It aims to double its global sugar refining production capacity to five million tonnes a year in the next five years mainly through building new refineries, Baroum added.

"A majority will be done through greenfield capacity... we would do acquisitions to acquire access to markets."

The company said earlier this month it would increase its sugar refining capacity in Egypt to 1.15 million tonnes per year within two years up from a current 750,000 tonnes, raising its global sugar refining capacity to three million tonnes in 2010.

Turkey is among markets the company is looking at for the extra two million tonnes sugar refining capacity.

"We are looking at opportunities for beet sugar in Turkey if there is a privatisation," Baroum said in reference to the sugar refining expansion.

Savola is waiting for regulatory approval to sell a 30% stake in fast-food chain Herfy Food Services Company through an initial public offering (IPO).

The stake would be worth $66 million of existing shares.

"The IPO would allow us to access capital markets for further growth," Baroum said.

Savola expects sales by its Panda Al-Azizia supermarket chain to rise 38% this year to 5.1 billion riyals ($1.36 billion) on higher sales and expanded network, Baroum said.

Panda wants to add 16 new supermarkets in the kingdom this year to bring the number of its outlets to 78, Baroum said. "We have already added five this year," he said.

Baroum expects the takeover by Panda Al-Azizia of local Giant Stores to be completed in June. The takeover agreement in exchange for 20% of Panda Al-Azizia's shares was announced in February.

The merger with Giant Stores, which has 20 branches, will generate combined sales of around 6 billion riyals, Baroum said earlier this month in Riyadh.

Savola's retail business' net margin stood at less than 1% in 2007 and is expected to exceed 1% in 2008 on synergies the merger will generate, Baroum said.

Shares of Savola were down 1.35% at 1100 GMT. The stock is up 2.78% this year, outperforming the market, which is down almost 13%. (Reuters)

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