Olam International is selling a 50 per cent stake in its wholly owned subsidiary Far East Agri to a Thai firm as part of a strategic partnership to expand in the Indonesian sugar sector.
Mitr Phol Sugar will pay Olam US$100 million (S$135 million) for the stake in Far East, which operates a sugar refinery in Central Java.
The deal involves Far East looking into developing a greenfield sugar-milling facility in East Java. This mill will source 1.2 million tonnes of sugar cane from farmers upon completion in 2020, said Olam.
The transaction, expected to be completed by the end of this month, will generate a one-time gain of about US$80 million for Olam.
"The transaction releases cash for Olam to deliver improved free cash flow and pursue profitable growth in prioritised businesses," it said in an exchange filing.
Mr Joe Kenny, managing director and chief executive of Olam's sugar and dairy division, said the potential expansion into sugar milling will transform Olam's overall participation in Indonesia's sugar sector.
The sector faces growing demand and a persistent supply deficit. This presents attractive investment and return opportunities, he noted.
He added: "Mitr Phol is a natural partner, given our shared vision and complementary strengths.
"Their strong sugar-milling expertise, coupled with our farm gate, sourcing and manufacturing capabilities, will enable us to cater to the growing demand for sugar in Indonesia."
Mitr Phol chief executive and president Krisda Monthienvichienchai said that both companies' shared belief in Indonesia's potential and in creating long-term value will underpin its growth strategy there.
Separately, Olam said it has fully redeemed US$750 million of bonds due next year.
The bonds, which had a coupon of 6.75 per cent, carried free detachable warrants that gave the right to subscribe for a new Olam share at an exercise price of US$1.291 each.
The right to exercise the warrants and subscribe for new shares expire at 5pm on Jan 29. After that point, any warrant that has not been exercised will cease to be valid.
Olam had 55.6 million warrants in issue as at Dec 14, at an adjusted exercise price of US$1.09.
Olam stock closed unchanged at $2.16 yesterday.