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. Last Updated: 07/27/2016

Sugar Giant Buys Up Rival Trading Firm

Its books loaded with contracts for this year, sugar trader Rusagro has announced it will merge with Rosprod in order to strengthen its market positions.

"The idea is to build a larger holding company," said Vadim Moshkovich, general director of Rusagro.

This week, Rusagro confirmed merger talks with Rosprod, a sugar-trading company that runs two factories and has a long-term relationship with Sberbank.

Rosprod runs the Zherdevsk sugar refinery in the Tambov region and a vegetable oil factory in the Voronezh region, while Rusagro has three sugar factories close to Belgorod and one in the Krasnodar region.

"The merger will produce synergy effects," said Alla Khokhrina, a former Rosprod official who left the company in the middle of last year to become deputy director of Kolibri, a new business she set up with top managers from other sugar-trading companies.

Rusagro imported 600,000 tons of raw sugar in 2000, while Rosprod brought in 105,000 tons, so Rusagro — with quotas for 725,000 tons on its books for this year — will be roughly the size of the combined operation of the two companies in 2000.

Rusagro bought 19.9 percent of the quotas covering supplies of 3.65 million tons of raw sugar in 2001, auctioned off by the government in November last year for a total of $230 million.

Under terms of the auction, traders are entitled to buy raw sugar, paying an import duty of 5 percent instead of the 30 percent tariff on imports in excess of the annual quota set at 3.65 million tons.

Some industry insiders believe Rosprod's relationship with Sberbank is its major asset.

"Rosprod bucked the trend, buying a lot of sugar at the end of 1999, so when prices fell, it had to sell sugar below the going market price," said Vadim Gomoz, spokesman for RSI, an information agency on the sugar industry.

The price per ton of sugar hit a low of $215 at the start of last year, undercutting the operations of the sugar traders that had large stocks of raw sugar.

Rosprod may have posted a loss of up to $40 million, exasperating the patience of its main lender, Sberbank, according to an official at a sugar-trading company who asked not to be identified.

Rusagro may have taken over Rosprod's debts in exchange for Sberbank's promise to fund its purchase of the quotas for $40 million, Gomoz said.

Sberbank officials refused to comment Thursday, while Khokhrina and Moshkovich dismissed as a rumor the suggestion that Sberbank may fund Rusagro.

"Clearly, every company would like to have a partner like Sberbank," Moshkovich said, explaining the rationale for the suggestion.

Rusagro officials say Rosprod was profitable in 1999 and 2000.

Prices for domestic white sugar topped $450 per ton in January this year, up from $410 in August 2000 and more than twice as high as at the start of last year, providing much-needed relief to the battered industry and postponing an inevitable flood of mergers.

"It is likely that a wave of mergers will unfold in three to four years," Khokhrina said. "As for now, sugar companies have some breathing space."