SAO PAULO, Jan 29 (Reuters) - Struggling Spanish multinational Abengoa and a group of farmers in Brazil have reached a deal over late payments for cane and land leases that could enable the company to maintain operations in its two local mills as the new season approaches, said people involved in the talks.
The two Abengoa sugar and ethanol mills in Brazil were near collapse due to heavy debts with banks and suppliers. Located in the main sugar belt in Sao Paulo state, they have a combined capacity to crush 6.5 million tonnes of cane per year, producing 235 million liters of ethanol and 645,000 tonnes of sugar.
"They sent us a proposal to pay the arrears gradually starting on February 15," said Arnaldo Antonio Bortoletto, director of a cane suppliers association in the area where Abengoa operates.
"So, if they pay the first tranche and honor the following parcels I think they will have enough cane to crush in the mills for the new crop," he said.
The deal with cane growers could provide a lifeline for Abengoa Brasil Bionergia SA while its parent company in Madrid seeks a buyer for the installations. Abengoa said this week it plans to sell all of its biofuel related assets to raise cash to try to save the global company from bankruptcy.
Abengoa bought the two mills in 2007 from Brazil's Dedini Agro for around 500 million euros, including debt.
At the time the Brazilian sugar and ethanol sector was booming with foreign investments fueled by interest in Brazil's ethanol market.
But soon after, the government started a long-lasting policy that kept gasoline prices artificially low to contain inflation. That, combined with a prolonged period of low sugar prices, devastated the sector.
Abengoa's director for sugar and ethanol in Brazil, Rogerio Ribeiro Abreu dos Santos, confirmed the deal with cane suppliers and said the company is also working with banks and creditors to renegotiate obligations in the hopes of maintaining operations.
"We are working hard to restructure debt and generate cash flow, so we can finance operations," he told Reuters.
"We are already seeing positive results from this, not only with banks but also with other creditors," he said.
Santos declined to reveal the unit's debt load.
Abengoa Brasil Bioenergia's latest public statement earlier last year put debt with banks at around 900 million reais ($225 million). Total debt with suppliers is not known. (Editing by Reese Ewing, Bernard Orr)