BP expands in Brazilian biofuels

Sao Paulo, Mar 12 (Reuters): Oil major BP has agreed to buy a Brazilian sugar and ethanol group for $680 million, expanding its presence in the country's biofuels industry in what it said was the largest deal to date for its alternative energy unit. The deal accents big oil's diversification into Brazil's ethanol sector as economies rethink their dependence on fossil fuels, especially following the political unrest in the Middle East that has driven oil prices to the highest since 2008. BP, which has spent recent months reshaping its portfolio as it looks to put the Gulf of Mexico oil spill behind it, said on Friday it would have an 83 per cent stake in cane milling group Companhia Nacional de Acucar e Alcool (CNAA). It will refinance 100 percent of CNAA's long-term debts, which were included in the $680 million but not disclosed. "Brazil is without any doubt a main focus for BP investments," Mario Lindenhayn, CEO of Brazil's BP Biofuels unit, told reporters citing the country's economic growth and global relevance in biofuels. The largest deal ever done by BP Alternative Energy is expected to more than triple the company's production capacity in Brazil to around 1.4 billion liters of ethanol/year, up from 435 million liters currently. The remaining 17 per cent share in CNAA belongs to French commodities group Louis Dreyfus. "We have the ambition to be a relevant player in Brazil in the next 10 years therefore we are open for new opportunities," Lindenhayn said. "We are open and flexible for any kind of business." The investment is the latest in a series made by oil majors in Brazil's cane sector as ethanol is seen as an alternative to gasoline and expected to be adopted as a fuel additive in several countries for economic, political and environmental reasons. BP was the first oil giant to get into the sector, which has seen a wave of mergers and acquisitions since the worsening of the 2008 global credit crisis hit mills that had been highly leveraged to fund ambitious expansion plans. The company entered the sector in 2008, when it took a 50-per cent stake in Tropical Bioenergia SA, a joint venture with two local groups that runs a mill in Goias state. One of the groups was later bought by Louis Dreyfus, which currently holds a 25-per cent share in Tropical. CNAA is controlled by the Sugarcane and Alcohol Investment and Participation Fund, made up of investment funds from Carlyle/Riverstone, Goldman Sachs and Discovery Capital, Global Foods and DiMaio Ahmad, according to the company's website.