RIO DE JANEIRO, BRAZIL – The Centro de Tecnologia Canavieira (Sugarcane Technology Center – CTC) is seeking to “educate” potential investors before resuming its initial public offering (IPO) process, interrupted in April this year.
At the time, there was strong competition from several other offerings, and the IPO window in the Brazilian market was starting to close. The company expected to raise approximately R$1 billion (US$196 million) with the operation.
Although the company has been posting financial results that may please more traditional investors, with a continuous increase in margins and cash flow over the past four years, CTC wants investors to understand what an agricultural biotechnology company is, said Gustavo Leite, the company’s CEO. The sector is currently entirely absent from the Brazilian stock market.
“We are not like a mill, which is ‘desperate’ for operational excellence at lower costs. Here, innovation is the driver, and, to this end, a certain tolerance for error is required,” said Leite.
In the last fiscal year (ended in March), following the sugar-alcohol harvest period, CTC invested 43% of its revenue in research and development (R$146 million). Nevertheless, the company improved its operational results, and its earnings before interest, taxes, depreciation and amortization (EBITDA) reached R$178 million, three times more than the last crop year.
The “dream profile” of a CTC investor is similar to those who frequent Nasdaq stocks today, says the CEO. “They are used to investing in long-maturing companies. It’s interesting for those looking from a strategic standpoint, but not for those who want to report earnings very quickly,” said Leite, a former Monsanto executive.
This has not prevented CTC from attracting fund managers for an intensive immersion program in the company, which involves full-day visits to its laboratories and experimental fields in Piracicaba (SP). “The funds come one by one, they spend a whole day here.”
“We start at 9 AM and stay until 1 PM in a classroom, explaining and answering questions. In the afternoon, everyone visits the biotechnology laboratory, the sugar cane seed project, and the nurseries,” he says. “The program has been very successful.”
According to the executive, what is lacking for CTC to place its IPO in the market again is to realize that investors are “ready” and “see value” in the company. He believes that a reopening of the process this year would be feasible, “but I don’t think it is advisable.”
CTC has a deadline to go public. According to its contract with BNDES (National Bank for Economic and Social Development), which currently holds 18.9% of its shares, the company needs to launch its stock offering by 2023, with room to extend this date for another two years should the company be unable to find a window in time. But Leite is in no rush.
“They will use [pricing] measures like EBITDA. As our EBITDA has been growing at dizzying rates, waiting one or two years may actually be beneficial,” he said.
The plan is for the IPO to be an opportunity not only for BNDES and some minority partners to leave the business, but also to raise funds for CTC’s innovation fronts: transgenic sugarcane, sugarcane seed production, and genomic editing. Given their potential to attract new investments, the latter two are the priorities.
With genomic editing, a technique that is still being researched in science and that differs from transgenics by not needing genes from other species, CTC could achieve pest-resistant plants. The technique is developed in a company laboratory set up in 2018 in the United States.
The sugarcane seed project is closer to achieving its goal. In the last crop, of all the seeds developed by CTC, 77% were successful in germination. According to the CEO, the plan is to release the seed when the success rate reaches 95%.
Source: Valor