Namoi banks $30 million in Louis Dreyfus joint venture
Dreyfus will pay $30.4 million for a 49 per cent stake in the joint venture, and will pay a further $3.7 million for 14.3 million new shares in Namoi, gaining a 13 per cent stake and a board seat.
Namoi chief executive Jeremy Callachor said a great part of the proceeds would go to reducing debt, which stood at $159 million at August 31.
Namoi shares collapsed by 75 per cent in October 2011, from 34¢ to 8.5¢, when the company unveiled heavy losses on cotton marketing and increased borrowings after unprecedented volatility in the global cotton price.
Cotton prices soared in early 2011, peaking above $500 a bale, and swung wildly that year before dropping sharply last May, falling below $400 a bale, where they have stayed. Namoi shares have recovered slowly, but spiked 6¢ to 30¢ yesterday.
Mr Callachor told Fairfax Media that while prices for growers remained low, particularly in Australian-dollar terms, cotton futures indicated prices would return to around the top of their range - before the volatility of 2011-12.
Mr Callachor said this year's Australian cotton crop would be about 4 million bales - well down on last year's record 5.4 million bales - but the outlook was very positive given water security was at historic levels for most cotton-growing regions after heavy rainfalls in 2011 and 2012.
The Louis Dreyfus deal, to be voted on by Namoi grower members next month, comes as US crop giant Archer Daniel Midland is bidding $2.8 billion for Australia's GrainCorp, overseas bidders are being sought for Elders Ltd's rural services business, and PrimeAg has put itself up for sale.
One broking analyst, speaking off the record, said Namoi's deal with Louis Dreyfus showed Australia remained an attractive supplier of soft commodities to world markets.
The deal would lend balance-sheet strength to Namoi Cotton for marketing purposes, and "ring-fence" the core ginning and cotton-seed business from market volatility, the analyst said.
In a Wednesday note CBA commodities analyst Luke Mathews wrote that, while US inventories were falling, the "global balance sheet remains extremely sloppy, with record global inventories forecast at the end of the 2012-13 season".
"Mill demand remains weak and the US is simply exporting its warehoused cotton to China, where the supplies sit in record large Chinese stockpiles. Cotton prices will turn lower unless there is a strong pick-up in mill consumption."
Frequently Asked Questions about this Article…
Louis Dreyfus agreed to pay $30.4 million for a 49% stake in the marketing joint venture with Namoi. It also committed a further $3.7 million to buy 14.3 million new Namoi shares, giving it about a 13% shareholding in Namoi and a board seat.
Namoi shares jumped about 25% on the announcement of the Louis Dreyfus deal. The stock has been recovering from a steep 75% collapse in October 2011 (from 34¢ to 8.5¢) and spiked 6¢ to 30¢ the day after the deal was revealed.
Namoi's chief executive Jeremy Callachor said a large part of the proceeds would be used to reduce debt. Namoi's debt stood at $159 million as at 31 August.
Analysts say the deal should strengthen Namoi’s balance sheet for marketing activities and help 'ring-fence' its core ginning and cotton-seed business from volatile cotton markets by partnering with a global commodities player.
Yes. The Louis Dreyfus transaction is scheduled to be voted on by Namoi grower members next month, so member approval is required for the deal to proceed.
Namoi's CEO said futures indicate prices could return toward the top of their recent range (before the 2011–12 volatility), even though grower returns remain low in Australian-dollar terms. However, a CBA commodities analyst warned that weak mill demand and record global inventories could keep downward pressure on prices unless mill consumption picks up.
Namoi expects this year's Australian cotton crop to be about 4 million bales, down from a record 5.4 million bales the previous year. The outlook is positive for growers because water security is at historic levels for most cotton-growing regions after heavy rainfall in 2011 and 2012.
Global factors matter: while US inventories were falling, analysts warned the global balance sheet remained 'extremely sloppy' with record global inventories forecast by the end of the 2012–13 season. Weak mill demand and large Chinese stockpiles of exported US cotton mean prices could fall unless there is a strong rebound in mill consumption, increasing price risk for cotton firms and their investors.
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