Shell's operations in Brazil will inject 3.5 billion reais into Raizen, the oil major's Brazil chief executive confirmed on Tuesday, signaling the firm's commitment to shore up the ailing sugar and ethanol producer. The announced contribution, equal to about $667.84 million using the exchange rate provided in reporting, is aimed at stabilizing a company that has faced mounting losses and growing net debt.
Raizen has been under pressure after reporting a series of quarterly losses and an expanding debt burden. Management has attributed the deterioration in recent results to a combination of heavy capital spending and adverse weather that has damaged crops, dynamics that have reduced cash flow and increased refinancing needs. In February, Raizen issued a warning that significant uncertainty exists around its ability to continue as a going concern.
Reports last week indicated Shell would provide the 3.5 billion reais lifeline, and sources suggested that the oil major's planned infusions would be substantially larger than funds expected from its joint-venture partner Cosan. Creditors have expressed dissatisfaction with a restructuring proposal put forward by a fund managed by BTG Pactual that would split Raizen's operations by separating the fuel distribution business from refineries and other assets.
Speaking publicly, Cristiano Pinto da Costa, CEO of Shell's Brazil unit, said Shell prefers to keep Raizen intact rather than breaking it into distinct businesses. He added that Shell anticipates another shareholder will be able to support Raizen with an additional 3.5 billion reais injection, implying a coordinated recapitalization effort between major owners.
Costa acknowledged that dividing Raizen into two separate units remains a theoretical option. However, he emphasized that any such structural separation should be evaluated only after the immediate recapitalization is completed, indicating that preservation of the company's integrated structure is the near-term objective.
Later on Tuesday, a Brazilian newspaper reported that Cosan does not plan to inject fresh capital into Raizen, citing unnamed sources. The same report indicated that Rubens Ometto, Cosan’s founder and controlling shareholder, would personally invest 500 million reais in Raizen through his family office, Aguassanta.
At the exchange rate included in reporting, $1 equals 5.2408 reais.
Context and implications
The capital commitments disclosed by Shell and the reported individual investment by Cosan’s controlling shareholder suggest a multi-party effort to address Raizen’s pressing liquidity and solvency questions. How the commitments are structured, and whether other shareholders ultimately provide matching support, will determine whether Raizen can complete a stabilization plan without proceeding to a breakup or other restructuring alternatives.