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PARIS/LONDON, Dec 4 (Reuters) - French cooperative Tereos,the world's second largest sugar maker, is holding extraordinaryelections to its membership council this week which thefarmer-owned group hopes will end an internal feud at thedebt-laden group already struggling with an industry-wide slump.
A sharp fall in sugar prices in the European Union hastriggered a crisis in the industry that has also hit rivals suchas Suedzucker
For Tereos, the impact of low sugar prices has beenparticularly harsh due to the company's heavy debt burden anddeep exposure to sugar.
Tereos posted a loss last season and is likely to recordanother in 2018/19, weighed down by its European sugar activities, Chief Executive Alexis Duval told Reuters.
As concern over Tereos' financial situation grew among its12,000 members, 70 out of 172 elected members of the Council ofRegions quit over the summer to protest at management strategy.Council members are designated by cooperative members torepresent them at Tereos' general assembly.
The group said this week's elections to replace them, withresults expected on Wednesday, were an opportunity for unityafter months of public wrangling.
"Make no mistake ... the temptation to pit Tereos people andregions against each other and the chimera to turn in uponourselves, are deadly poisons for our cooperative," FrancoisLeroux, chairman of Tereos' supervisory board, told cooperativemembers in a letter last week.
Tereos held 15 regional meetings in October to answercooperative members' concerns, fueled by two anonymous lettersabout the group's "critical" financial condition and an internalrebellion by three resigning board members.
The company has been under pressure to reduce its 2.35billion euro ($2.6 billion) debt burden and boost cash as itlooks to offset losses from its sugar operations, which accountfor nearly half of revenues, with the rest mostly from ethanol,starch and sweeteners.
"Tereos has been growing a lot ... but it was mostly fundedby internal cash flows or from debt. Because as a cooperative,they cannot raise equity," said Maxime Puget, director at S&PGlobal Ratings, which rates Tereos' bonds.
"They have high levels of debt due to previous acquisitionsand they have never been able to de-leverage and that's theirproblem."
MINORITY STAKE
Tereos said in June it was considering selling a minoritystake to help it continue growing abroad and diversifying itsactivities. It is due to unveil initial details of its capitalincrease around Spring next year.
Tereos' fast expansion, notably in Brazil where it is thethird largest sugar maker, has left many of its French sugarbeet farmers frustrated because they have received little returnfrom it.
"We feel we need to change strategy away frominternationalisation and expansion at all costs because that'swhere debt came from," Benoit Mazure, 44, a grower in the Beauceregion South of Paris.
Three former members of Tereos' supervisory board voicedstrong concern about the group's future over the summer, askingfor more details and transparency.
They were expelled from the cooperative for defamation inAugust, a move seen as extreme by many members.
In protest, the dissidents launched a petition in Septemberthey say gathered over 2,500 votes to request an extraordinarygeneral meeting.
"Reflection about the group's future has been seriouslyslowed down by this fight," said a senior Tereos employee whoasked not to be named. "Plus, it doesn't make the group veryattractive for a capital increase."
Industry sources told Reuters that a representative ofTereos' supervisory board had approached Germany's Nordzuckerthis summer to potentially seek capital through a tie-up. Tereosdenied that the supervisory or the management board hadcontacted the German company. Nordzucker declined to comment.
"Tereos has not contacted potential investors who canparticipate in this project today. Neither directly norindirectly. Because we will have to do some study first andbecause it is a project for the future. There is no rush," Duvalsaid.
European sugar companies' profits have plunged as worldsugar prices fell to their lowest in a decade this year amid asurge in supplies, partly driven by more output from the EUafter it scrapped export and output quotas last year.
Germany's Suedzucker, the world's leading sugar maker,slashed its earnings forecast on expectations that sugar priceswill fail to recover in the near-term. The group, however,carries less debt and as a publicly listed company has been ableto raise cash through equity markets.
Sources with knowledge of the company say it is unlikelyTereos will find a partner or go public until sugar pricesrebound significantly.
Sugar
"With sugar prices at $500 or $600 we would not be in themess we are today," said Etienne Clabaut, one of the Tereossupervisory board members who left in July. "There is a dangerbut we can still bounce back."
(Reporting by Ana Ionova, Jonathan Saul and Nigel Hunt inLondon; Sybille de La Hamaide, Valerie Parent in Paris; andMichael Hogan in HamburgEditing by Veronica Brown and Giles Elgood) ((Sybille.deLaHamaide@thomsonreuters.com; +331 4949 5145;Reuters Messaging:sybille.delahamaide.thomsonreuters.com@reuters.net))
