UPDATE 3-Australia's Nufarm sells S.American assets for $800 mln to repay debt

* Sells LATAM assets to top shareholder, Japan’s Sumitomo Chemical

* Nufarm shares hits over 1-year high in record intraday gain

* Annual underlying net profit after tax falls 10% (Adds analyst comment, details about transaction, background)

Sept 30 (Reuters) - Australia’s Nufarm will sell its South American crop protection and seed treatment assets to its biggest shareholder, Japan’s Sumitomo Chemical, for A$1.19 billion ($804.80 million) to help pay down debt amid a severe domestic drought.

Nufarm shares rose as much as 56% on Monday morning, their best-ever intraday percentage gain, to a more than one-year high of A$6.94. They were later up 28%.

Australian farming companies are struggling to boost cashflows as profits are hurt by severe dry weather that has threatened grain production across Australia’s east coast. Nufarm has also taken a hit from flooding in parts of the United States, where it operates several plants.

Nufarm tapped the Japanese investor for money in August as well, selling it A$97.5 million worth of stock. The Melbourne-headquartered company said on Monday it will buy back these shares after the asset sale is completed.

The sale of assets will allow Nufarm to focus on high-margin crop protection markets in Europe and across North America and the company hopes that its exposure to Australia will prop up earnings after the industry recovers from two years of drought, Nufarm said in a statement on Monday.

“There are concerns that the drought has affected Nufarm’s local operations,” said Michael McCarthy, chief strategist at CMC Markets and Stockbroking.

“Being able to realise the value out of their South American business has alleviated a lot of the concerns that there might be balance sheet pressure from the drought on Nufarm,” he said.

The drought led the herbicide maker to cut its annual earnings guidance in August, while bulk grain handler GrainCorp Ltd flagged its first annual loss in a decade.

Nufarm, which said the transaction includes assets in Brazil, Argentina, Chile and Colombia, has net debt of A$1.25 billion as of July 31. This was down 9% from a year earlier after the company raised money in the first half of the year, Nufarm said in a separate earnings release on Monday.

For Sumitomo Chemical, which owned about 16% of Nufarm as of October last year, the deal will help triple its crop protection revenue in South America, surpassing revenue from the North American region, the Japanese firm said in a statement. The company expects to benefit from the expected growth in the South American crop protection market, particularly in Brazil.

The two companies will also enter into a two-year supply and transitional services agreement as part of the deal, for Nufarm to provide procurement services and the continued supply of some products to the South American businesses.

Nufarm said its annual underlying net profit after tax fell about 10% to A$89.1 million for year ended July 31 and that tight supply conditions experienced in 2019 for some technical ingredients sourced from China were expected to continue to push up raw material costs in 2020.

Still, Nufarm said the cost reduction programme it implemented a few years back will boost earnings before interest, tax, depreciation and amortisation by A$10 million to A$15 million in 2020, as will the resolution of supply issues that hurt availability of some products in Europe in the last fiscal year. (Reporting by Aby Jose Koilparambil and additional reporting by Nikhil Nainan in Bengaluru; Editing by Sayantani Ghosh and Muralikumar Anantharaman)