Singapore-listed commodities trader Olam International on Monday announced a strategic partnership with Mitr Phol Sugar, Asia's largest sugar producer, to capitalise on the growth opportunities for sugar milling and refining in Indonesia.
As per the deal, Mitr Phol Sugar will invest US$100 million in a 50 percent stake in Olam International's wholly owned subsidiary, Far East Agri. Olam will retain the remaining 50 percent stake in Far East.
Under the new agreement, Far East will explore the development of a green-field sugar milling facility in East Java. Upon completion in 2020, the sugar mill will source 1.2 million metric tonnes of cane from farmers, the company said in a regulatory filing.
The transaction releases cash for Olam to deliver improved free cash flow and pursue profitable growth in prioritised businesses, the company said.
"Our potential expansion into sugar milling will transform our overall participation in Indonesia's sugar industry, which offers attractive investment and return opportunities due to its growing demand and persistent supply deficit," Joe Kenny, Managing Director and CEO for Sugar & Dairy, Olam International said in a statement.
In addition to the joint venture, Mitr Phol will join Olam's programme of extending Good Agricultural Practices to farmers across Indonesia, which have been in place since Olam entered the country in 1996.
Shares in the company rose 0.5 percent to S$2.17 on the Singapore Exchange.