Shell, Cosan and BTG Advance in Capital Deal for Raízen

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(Bloomberg) — Cosan SA and Shell Plc are in advanced talks to inject new capital into their Brazilian sugar and ethanol joint venture Raízen SA, according to people familiar with the matter, with the aim to present a plan to the company’s main creditors and bondholders before finalizing it.

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The proposal on the table includes investments from private equity funds managed by Banco BTG Pactual SA, which would acquire a significant stake of Raízen’s fuel distribution business for about 5.5 billion reais ($1.05 billion), the people said, asking not to be identified discussing private information. The parties remain in discussions about what percentage of Raízen’s debt would be converted to equity, with talks focused on about 35%, the people said.

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Raízen needs fresh funding after being squeezed by high interest rates, weaker-than-expected harvests and a series of ambitious investments that have yet to deliver meaningful returns. Its credit rating has been slashed and bonds have plummeted as its financial situation has deteriorated. 

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The plan now in discussion includes a capital increase of 3 billion to 5 billion reais from current shareholders of Raízen, the people said. Shell would contribute 1.5 billion reais to 3.5 billion reais, depending on future royalty demands from the company, the people said. 

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Cosan, based in Sao Paulo, could end up injecting 1 billion reais. Rubens Ometto, its billionaire founder, would chip in an additional 500 million reais, the people said. Ometto is seeking a loan to fund the transaction, the people said. 

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The plan includes a corporate reorganization, splitting Raízen Energia, the company focused on producing sugar and ethanol, from the fuel distribution firm in which BTG would invest.

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Raízen Energia would then transfer part of its debt to the fuel distribution firm, separating the cash flow of the two companies and allocating part of the debt to the business that generates the most cash. The deal includes share offerings to provide an exit for creditors and bondholders. The proposal would also include asset sales, the people said. 

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The final numbers and many details still need to be defined and an agreement, which depends on creditors’ and bondholders’ views, may end up not being reached, according to the people. A meeting with creditors and bondholders is expected to happen this week, according to the people. 

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Shell’s spokesperson said that the company’s “priority is to ensure Raízen identifies and pursues solutions that are sustainable for the JV, shareholders, and the company’s wider stakeholders,” and reinforced it’s constructively engaged for a viable agreement. Cosan, Raízen, BTG and Ometto declined to comment. 

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BTG Pactual Holding SA, an investment vehicle for partners in the bank, invested 4.5 billion reais in Cosan in a capital increase last year. While Ometto retains control of the voting rights, with a 50.01% stake via Aguassanta, BTG’s partners became the largest economic shareholders after the deal, with almost 25%.

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While the parties discuss terms of their deal, Cosan is also working on other ways to raise capital. The company said on Monday it is evaluating the possibility of carrying out an initial public offering of shares issued by Compass Gas e Energia, according to a filing.