Cosan to Sell U.S Shares to Finance Expansion, CFO Diniz Says

May 17 (Bloomberg) -- Cosan SA Industria e Comercio, the world's biggest sugarcane processor, plans to sell American depositary receipts to finance acquisitions and expansions, as demand for sugar-based ethanol fuel soars.

Cosan is seeking to double its size in six years and raise its market share to 20 percent, Chief Financial Officer Paulo Diniz said. The sale of ADRs on the New York Stock Exchange is likely to come in the next 18-to-24 months, Diniz, 48, said in an interview in the Piracicaba, Brazil-based company's Sao Paulo offices.

Cosan sales have risen as sugar prices more than doubled in the past 12 months, the second-best performance of world commodities, driven by demand for ethanol fuel and the sugarcane used to make it. Developed countries including the U.S. are requiring refiners to boost ethanol use as they phase out more- polluting additives such as MTBE, or methyl tertiary butyl ether. U.S. law requires refiners to increase ethanol consumption by 11 percent a year through 2012.

"High oil prices have made ethanol fuel very competitive" Diniz said. "If protectionist tariffs were eliminated by the U.S., the sugar industry could grow significantly."

The U.S. has had a 54 cent a gallon tariff on ethanol imports from countries outside the Caribbean and Central America since 1980.

Cosan's sugar and ethanol production capacity has increased by 20 percent to 25 percent in the past few years, Diniz said.

Ethanol's is contributing more of the company's revenue, he said. In the first nine months of the fiscal year ended in March, the fuel accounted for 35 percent of Cosan's sales, up from 27 percent a year earlier, Diniz said.

Initial Offering

Cosan raised 770 million reais ($356 million) in an initial public offering in November. The company sold $450 million of perpetual bonds, which don't have a set maturity, in January to help fund buyouts and expansion of plants. Credit Suisse Group and Morgan Stanley managed the bond sale.

Cosan's doubling in size "will be done by raising money in a series of transactions that include selling debt and capital" Diniz said. "Selling ADRs on the NYSE is a very attractive part of this strategy."

Tapping international markets, including the sale of depositary receipts, will depend on the pace of the company's acquisitions, Diniz said. The company plans to spend $400 million on acquisitions in coming years to boost production.

"If rising sugar and ethanol prices drive up the cost of acquisitions, then we would hold off plans to raise money'' he said.

Cosan projects that sugar will trade at between 15 cents a pound and 18 cents a pound and the Brazilian real will trade at 2.10 per dollar to 2.20 per dollar by yearend, he said.

Sugar Price

Raw sugar for May delivery fell 0.03 cents, or 0.2 percent, to 17.00 cents a pound at the New York Board of Trade 11:35 a.m. New York time.

The Brazilian currency has gained 14 percent in the past year, the second best performance among 62 currencies tracked by Bloomberg.

The strengthening of the real will crimp export revenue in the fiscal year that ended in March, Diniz said. He expects exports of sugar and ethanol to account for 55 percent of Cosan's revenue, down from 60 percent in the year earlier.

Cosan gets fewer reais for its exports because of the appreciation of the Brazilian currency against the dollar, Diniz said. Cosan is scheduled to report its fiscal year results to the securities regulator next month.