WHITE PLAINS, N.Y. — Bunge Ltd. and BP P.L.C. have agreed to form a 50/50 joint venture, a bioenergy company in Brazil called BP Bunge Bioenergia, the two companies announced July 22. The joint venture will have 11 mills across Brazil and have a combined annual crushing capacity of 32 million tonnes. Of that total, Bunge will contribute 8 sugar cane mills with a combined annual capacity of 20 million tonnes.

The joint venture will have the flexibility to produce a mix of ethanol and sugar. BP Bunge Bioenergia also will generate renewable electricity fueled by waste from sugar cane. The electricity will power all the BP Bunge Bioenergia sites, and surplus electricity will be sold to the Brazilian power grid.

Bunge through the transaction will receive $775 million in cash, comprising $700 million in respect of non-recourse Bunge debt to be assumed by the joint venture at the transaction’s closing and $75 million from BP. Bunge will use the cash to reduce debt under the company’s credit facilities.

“This partnership with BP represents a major portfolio optimization milestone for Bunge, which allows us to reduce our current exposure to sugar milling, strengthen our balance sheet and focus on our core businesses,” said Gregory A. Heckman, chief executive officer of White Plains-based Bunge Ltd. “We have a strong, committed partner in BP as well as flexibility in the medium and long term for further monetization, with full exit potential via an I.P.O. (initial public offering) or other strategic route.”

Bunge’s stock was trading at $56.58 per share on the New York Stock Exchange by midday on Monday, July 22, which compared to a close of $55.57 per share on Friday, July 19. The price was still off from a 52-week high of $72.35 per share reached on Oct. 8, 2018.

The transaction reduces Bunge’s exposure to a struggling non-core business and improves flexibility to execute a turnaround on the core, according to Credit Suisse, which added the $775 million in proceeds appears mildly accretive. Bunge’s short-term debt was $1,733 million on March 31, which compared to $750 million on Dec. 31, 2018. Long-term debt was $3,821 million on March 31, which compared to $4,203 million on Dec. 31, 2018.

The company’s Sugar & Bioenergy business has struggled recently, and in May 2018 Bunge Ltd. filed a registration request with the Brazilian Securities Commission for a potential I.P.O. of Bunge Acúcar & Bionergia, Bunge’s sugar milling business in Brazil.

Had the I.P.O. been completed, the sugar milling business would have operated as a standalone company. In the first quarter ended March 31, 2019, Bunge’s Sugar & Bioenergy business sustained a loss of $23 million, which compared to a loss of $20 million in the previous year’s first quarter.

After the transaction forming BP Bunge Bioenergia closes, which is expected to happen in the fourth quarter of 2019, Bunge no longer will consolidate its sugar and bioenergy operations in Brazil in its financial statements. Bunge will account for its interest in the joint venture under the equity method of accounting. Bunge began trading sugar in Brazil in 2006. The company acquired the Moema Group cluster of sugar cane mills in 2010.

Media reports in recent years have mentioned Archer Daniels Midland Co. and Continental Grain Co. looking at Bunge as a potential takeover target. Since those reports, Mr. Heckman took over as c.e.o., and the company reviewed each of Bunge’s individual businesses as well as the company’s capital allocation priorities.

BP Bunge Bioenergia is expected to be based in Sáo Paulo. Mario Lindenhayn of BP will be executive chairman of BP Bunge Bioenergia. Geovane Consul from Bunge will be c.e.o. BP and Bunge will have equal representation on the board of directors.

“Biofuels have a key role to play in the energy transition, and Brazil is leading the way in developing this industry at scale,” said Dev Sanyal, chief executive of BP Alternative Energy. “In one step, this agreement will allow BP to significantly grow the size, efficiency and flexibility of our biofuels business in one of the world's major growth markets.”