SAO PAULO (Reuters) - Brazilian sugar and ethanol maker Grupo Moreno, which operates three plants in the heart of Brazil’s sugarcane belt, has filed for bankruptcy protection, the law firm advising the company told Reuters on Thursday.
The move underscores problems caused by poor margins in the sugar business in recent years and a depressed domestic ethanol market between 2011 and 2015, when the Brazilian government kept gasoline prices artificially low to fight inflation, turning ethanol margins negative.
Grupo Moreno has engaged in debt restructuring talks with banks and potential investors for months, according to a source who has advised some of the creditors.
At one point, the person said, the company was close to a deal, which would include the sale of some assets and new terms for its outstanding debt.
Moreno’s debt is estimated by the source at around 2 billion reais ($483.44 million).
“In the end, they decided to file for bankruptcy protection. I think it is a bad decision. Hardly any company in the sector that went that way managed to recover,” the source said, asking not to be named because the restructuring talks were private.
The three plants operated by Grupo Moreno have a capacity to process 13 million tonnes of sugarcane per year. The company also owns agricultural land and power generation installations that use biomass — resulting from sugar and ethanol production — as fuel.
Felsberg Advogados, the law firm advising Grupo Moreno, said in the bankruptcy filing that more than half of the sugar company’s total debt is in the hands of banks, without specifying the nature of the other debt obligations.
It said expected economic growth and likely higher demand for ethanol in Brazil in coming years would allow the company to recover, once it can free itself of the high costs associated with current debt.
Reporting by Marcelo Teixeira; Editing by Tom Brown