By Luciana Magalhaes
SAO PAULO (Reuters) – Brazilian conglomerate Cosan has announced an ambitious plan to raise up to 10 billion reais (approximately $1.9 billion) through public offerings, with the primary objective of reducing its indebtedness. A company executive clarified on Monday that none of the funds would be allocated to assist Raizen, the company’s troubled joint venture with oil giant Shell.
While analysts generally viewed this strategy positively, Cosan’s shares took a significant hit, plunging 21%, marking potentially the steepest decline in the company’s history. This drop erased about 3 billion reais from its market capitalization. Shares of Raizen were not spared, falling by 9% as well.
“The capital raised will be strictly utilized to de-leverage Cosan,” stated CFO Rodrigo Araujo during a conference call with investors shortly after the announcement regarding the capital increase.
At the conclusion of June, Cosan reported a net debt of 17.5 billion reais, which remained steady compared to the end of the first quarter.
Raizen, recognized as one of Brazil’s largest energy enterprises, specializes in producing sugar and ethanol. However, it has faced significant challenges, including low sugarcane yields that have adversely affected its financial performance, along with escalating debt burdens and a declining stock price.
Shell has opted not to comment on the specifics of Cosan’s financial maneuver.
Cosan’s diverse portfolio also comprises logistics firm Rumo, lubricants company Moove, natural gas provider Compass, and agricultural property manager Radar.
The capital increase plan will see a substantial 4.5 billion reais investment from BTG Pactual Holding, which features billionaire Andre Esteves among its partners, alongside an additional 2 billion reais from the Perfin Infra Fund.
Additionally, the company’s founder, Rubens Ometto, is projected to contribute 750 million reais through his family office, with a prospective follow-on offering of up to 2.75 billion reais anticipated.
Cosan’s leadership clarified that this capital increase is just one step in a broader strategy for de-leveraging, with ongoing efforts to pursue asset sales. The company can now afford to wait for more favorable market conditions to act.
MIXED REACTION
An analysis by Citi indicated that the deal might result in a dilution of 40-50% for current shareholders, but it could have positive ramifications as it ushers Cosan into a new phase characterized by deleveraging efforts within the holding company.
Under a 20-year shareholders’ agreement, Ometto’s holding firm Aguassanta, BTG, and Perfin will collectively control Cosan. The new board composition will include five members nominated by Cosan and four collectively appointed by BTG and Perfin.
The financial restructuring also paves the way for a succession plan within Cosan’s leadership, with Ometto or a successor designated by him expected to remain as chairman for the foreseeable future of six years.
UBS analysts expressed optimism, suggesting that Cosan is likely to emerge in a much healthier financial state following this restructuring process.
(For reference, $1 equals 5.3378 reais)
(Reporting by Luciana Magalhaes; Additional reporting by Leticia Fucuchima; Writing by Fernando Cardoso; Editing by Sarah Morland, Gabriel Araujo, and Nia Williams)
