Rumo gains two partners for sugar transport

The Gávea and Texas Pacific Group (TPG) investment funds have become partners in Rumo Logistics, a rail transport company controlled by Cosan. The two investors together made a cash injection of R$ 400 million, and shall each keep 12.5% of the business (25% of the total), calculated at R$ 1.6 billion. Cosan shall keep possession of the other 75%.

The entry of strategic partners in this business was already part of the plans of this group ever since the constitution of Rumo, almost two years ago. The company, aimed at the railway transport of sugar between the countryside of São Paulo State and the port of Santos, actually started its commercial operations in February of this year.

The target of this logistics company is to handle between 9 million and 10 million tones of sugar per harvest – which is one third of the total production of the Centre-South of the country – up to 2012. In this first year of operation, Rumo has the expectation of reaching a total of 5 million tones of loose sugar. For 2011, the forecasts suggest a total of between 6.5 million and 6.8 million tones.

Marcos Lutz, the main executive of Cosan, has said that the Gávea and TPG funds shall, over the next three years, have the option of changing positions, which means leaving Rumo to obtain a stake in Cosan, if the logistics company fails to show liquidity. The shareholders, however, do not believe that this would be a real possibility, as rail transport of sugar has a strong growth potential. Rumo shall also be listed on the stock exchange when the macroeconomic conditions get more favorable, says the executive.

The transport of sugar by rail has started to gain strength in recent years – traditionally the transport of sugar was made by lorry. Currently, some 15% of the country’s total production of sugar is transported by train, while trucks account for 85% of the transport of this commodity to the ports. In the future, this equation could become the opposite, so believe the specialists in this segment.

To make the project feasible, Cosan, when the company still controlled 100% of the business, placed an order for 739 railway carriages and 50 locomotives, adding up to a total value of R$ 440 million. Out of this total, 439 carriages are already operational, according to Júlio Fontana Neto, the president of Rumo. Four of the 50 locomotives have also been delivered, and all should be fully operational by the start of 2011. The GE factory in Contagem (MG) shall be responsible for the locomotives. The companies Maxion and Randon shall be delivering the carriages, the proportion being two thirds and one third respectively.

We shall be receiving 28 locomotives by the end of the year and a further 18 by the end of the first semester of 2011, said the executive. Mr Fontana, who for 12 years was at the helm of MRS Logistics, has been leading this project for almost a year now.

The purchase of railway assets (carriages and locomotives) of Cosan was financed by the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES), through the Finame credit line, with interest charged at 4.5% per year over 10 years, with a grace period of two years. Latin America Logistics (América Latina Logística – ALL) is the company responsible for the management of these assets.

There are also ongoing investments in the improvement and also the doubling of the railway line, including the doubling of some stretches, which should progress in the next few months, for an investment of some R$ 535 million. Rumo has already requested the environmental licenses for the doubling of stretches of the railway connecting the city of Itirapina, in upstate São Paulo, to the port of Santos, a total track length of 330 kilometers (205.1 miles), and also for the construction of a major terminal for cargo loading, also in Itirapina. The company also has other centers for cargo loading in the cities of Sumaré (Airosa Galvão) and Pradópolis. The centre in Sumaré has had its stretch of 180 kilometers of track doubled.

At the beginning of the year, Rumo signed a contract to transport part of the sugar production of the São Martinho Group, which is one of the leading producers of sugar and alcohol in the country. According to Mr Fontana, other contracts may be lined up in the coming months.

Over the last few months, Rumo participated in road shows (presentations) to attract new investors to the business. Several groups and also funds have shown interest in the logistics company of Cosan – the largest sugar and alcohol producing company in the world and also one of the largest fuel distributors in the country. However, the Rumo operation was not conditional on the arrival of these partners, in the words of Mr Lutz.