Workers in a small town in the sugarcane region of Brazil learned the news on a typical Tuesday morning.
Most workers at the Raízen Santa Elisa sugar and ethanol plant were being laid off as the facility, a key driver of the local economy for nearly 90 years, was shutting down operations indefinitely.
Natã Nobrega, a technician who had worked at the factory for twenty years, expressed surprise at the unexpected turn of events, noting the sadness in people’s eyes during a recent interview.
The shutdown of Santa Elisa in July, the biggest plant of the world’s leading sugar producer, signaled trouble for its owner Raízen, a partnership between Brazilian Cosan SA and British Shell Plc. This marked a significant shift for a company that went public just four years ago in the largest stock offering in Latin America in 2021.
Rafael Bergman, the financial director, announced on Thursday that Raízen is currently engaged in discussions to secure a capital injection following a 56% increase in its debt over the past year. Additionally, the company reported a loss of R $7 billion (US$1.3 billion) in the quarter ending on 30th June.
The shares in São Paulo fell by up to 15% after the announcement, reaching a new low of R$1.02 ($0.19) – the largest decrease since the market opened. Currently, they are valued significantly less than the record of R$7.60 set on the first day of trading.
Remote possibility before?
Raising capital was considered improbable because Cosan is owned by Brazilian billionaire Rubens Ometto, who typically prefers to maintain tight control over the business, making the infusion of new capital a challenge due to potential dilution of their influence.
Cosan executives announced on Friday that they are now considering external investment in Raízen and are open to finding a strategic partner aligned with their and Shell’s visions.
UBS analysts led by Matheus Enfeldt from BB suggest that reducing the debt could attract investor interest in the company’s role, although it may result in dilution for current shareholders.
When established in 2011, Shell and Cosan envisioned a bright future for their joint venture, anticipating a potential value of $12 billion, which was later assessed at $14.3 billion during its IPO.
Raízen has increased its spending significantly in the past four years to achieve its ambitious goals, leading to a substantial rise in its net debt to R$ 49 billion by June, compared to R$ 31.6 billion the previous year.
Raízen’s acquisition of Biosev, the sugar division of Louis Dreyfus in Brazil, was problematic due to inefficient plants.
Second-gen biofuel investments, sugar traceability, and sustainable aviation fuel have not yielded results. Currently valued at just $2 billion, the company is exploring strategies to extract ethanol from sugarcane leftovers. Plans to export ethanol to the US for sustainable aviation fuel were hindered by a 50% tariff.
Raízen has performed more poorly than competitors like São Martinho SA and Jalles Machado SA due to the impact of low sugar and ethanol prices on the sector.
Raízen attempted to re-emerge by undergoing a leadership change last year, appointing Nelson Roseira Gomes Neto as CEO. Additionally, it initiated the sale of assets, including the Leme plant in Piracicaba and 55 renewable energy generating units.
Sales to date account for just 7% of the total debt, with plans in place to sell plants in Mato Grosso do Sul and the refinery and network of service stations in Argentina, as per Gomes Neto.
Bergman stated that the process of divestment will persist, acknowledging that it is a long-term endeavor.
A new investor, guided by Lazard for Shell and Itaú for Cosan, could provide liquidity if asset sales fall through, according to Valor Económico.
Up to 1,200 individuals in Sertãozinho are expected to be unemployed due to the shutdown of Santa Elisa, a facility acquired as part of the Biosev acquisition.
The city did not anticipate that outcome.
Maurilio Biagi Filho, a former executive at Santa Elisa, expressed hope for a return to the past but acknowledged that economic considerations ultimately hold more sway.
