Australia’s persisting dry east coast conditions continue to throw the spotlight on the country’s listed rural sector, with Nufarm, in particular, remaining a central point of discussion.
The latest suggestion is the listed agricultural chemicals company could consider a sale of its Latin American assets to its major shareholder Sumitomo, although some are not so sure a deal would occur.
Nufarm has operations in Chile, Columbia and Mexico, along with Argentina and Brazil.
Suggestions it may divest Latin American assets come at a time many believe the group will need to raise more funds on the back of the dry conditions here, and flooding in America, preventing farmers from buying its products.
Other suggestions have been a demerger of its seeds division or that the group will have to launch another equity raising after it tapped the market for $300 million last year and $446m in 2017.
Nufarm recently secured $97.5m from Sumitomo, which holds more than 24 per cent of the company, via a placement this month in a trade advised by investment bank UBS in what has been seen as a positive move to buy the company more time.
At the time of the announcement, chief executive Greg Hunt said Nufarm was on track to report underlying earnings before interest, tax, depreciation and amortisation of $420m for the year to July 31 when it reports on 30 September, a downgrade from the earlier range offered of between $440m and $470m.
It takes Nufarm’s net debt to EBITDA levels to around three times. Weighing in Nufarm’s favour is that Australian banks are hesitant to penalise any companies affected by drought so soon after the royal commission into the industry.
At the forefront of investors’ minds is the company’s annual general meeting, to be held in December, and whether current chairman Don McGauchie will stand for re-election, as a US-based private equity suitor was said to have recently knocked on Nufarm’s door.
JPMorgan and UBS are believed to be working for Nufarm as defence advisers but it is thought the Nufarm suitor is on the sidelines for now, due to uncertainty surrounding the herbicide Glyphosate that it sells.
Glyphosate manufacturers in the US have been at the centre of legal cases that have claimed it has played a role in causing cancer, but Nufarm is only a distributor of the product.
Other companies which have been subject to corporate activity in the rural space this year are Ruralco and GrainCorp.
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