Sao Paulo: Oil major Shell plc is prepared to commit more funds to support the recapitalisation of Brazilian sugar and ethanol producer Raízen, according to three people familiar with the matter who spoke to Reuters.
Raízen, one of the world’s leading sugar producers, is facing financial pressure after reporting a third-quarter net loss of 15.6 billion reais (about $3 billion) in mid-February. At the time, the company warned of “significant uncertainty” regarding its ability to continue operations.
By the end of December, Raízen’s net debt had risen to 55.3 billion reais. The increase was attributed to heavy investments, erratic weather conditions and wildfires that reduced harvests and lowered crushing volumes.
Sources said that as of last week, Shell was willing to inject 2.5 billion reais into the company. It has since indicated it could raise that amount to as much as 3.5 billion reais, subject to certain conditions. A third source confirmed that Shell had recently offered additional financing and is ready to contribute a larger share of the capital increase if needed. However, discussions are ongoing and no final agreement has been signed.
Shell and its joint-venture partner Cosan each hold a 44 per cent stake in Raízen. Cosan, controlled by Brazilian businessman Rubens Ometto, is also undergoing its own financial restructuring. According to sources, Cosan could invest 1 billion reais, while Ometto, who serves as Raízen’s chairman, may contribute up to 1 billion reais, depending on financing arrangements currently under negotiation.
One creditor told Reuters that Raízen would require around 25 billion reais to stabilise its finances. This amount would include new investment as well as proceeds from the planned sale of its Argentine operations, which are expected to raise about $1 billion.
Shell, Cosan and Ometto declined to comment, Reuters stated.
Earlier this month, Raízen appointed law firms Pinheiro Neto Advogados and Cleary Gottlieb Steen & Hamilton, along with financial adviser Rothschild & Co, to review its strategic options. Following the move, major credit rating agencies — S&P Global, Fitch Ratings and Moody’s — downgraded the company’s ratings.
In its report, Moody’s cited high debt levels, cash burn, rising interest costs and weaker-than-usual performance in Raízen’s core sugar and ethanol business as key concerns.
($1 = 5.1292 Brazilian reais)
