It was just another Tuesday morning in the heart of Brazil’s sugarcane region when workers in Sertãozinho, a small town four hours away from Sao Paulo, heard the news.
Almost everyone working at Raízen SA’s Santa Elisa sugar and ethanol mill was losing their job. The facility, which had propelled the town’s economy for almost 90 years, was idling work, indefinitely.
“I felt numb, I looked into people’s eyes and I saw sadness in them,” Natã Nobrega, a technician that worked at the mill for two decades, said in an interview last month. “Nobody expected it.”
The July closing of Santa Elisa, once the largest mill in top sugar producer Brazil, was a warning sign: its owner Raízen, a joint venture between Brazil’s Cosan SA and London-based Shell Plc, was in trouble. It was a stark change in fortunes for a company that went public just four years ago as Latin America’s largest share sale of 2021.
On Thursday, Chief Financial Officer Rafael Bergman delivered a bombshell: Raízen was “in active talks” for a capital injection after its debt ballooned 56% in the past year and the company burned through a 7-billion-real cash pile in the three months ended June 30.
The shares tumbled as much as 15% in Sao Paulo after the news to a record low of just 1.02 reais . That’s the stock’s biggest slump since the company went public. It’s now at a fraction of the record 7.60 reais it reached on its first day of trading.
Raising capital was until now seen by most analysts as a remote possibility. After all, Cosan is controlled by Brazilian billionaire Rubens Ometto, who has historically liked to keep a firm grip on his businesses — fresh capital would dilute his power and influence.
Cosan executives on Friday said the Brazilian holding company is now open to outside investment in Raízen. “Bringing in a strategic partner is an option we do like,” Chief Executive Officer Marcelo Martins said. A new partner, he added, needs to be someone whose view about the business is “in line with ours and Shell’s strategy.”
While lowering debt could “clear the way for investors to regain interest in the stock,” for now the move means current shareholders will see their ownership diluted, analysts at UBS BB led by Matheus Enfeldt said in a report on Thursday.
When Raízen was formed in 2011, Shell and Cosan painted a bright outlook, estimating the venture could reach $12 billion in value. Indeed, the IPO valued it at $14.3 billion.
To meet its ambitious growth plans, Raízen’s spending almost doubled in the past four years, while rising interest rates sent its debt surging. At the end of June, net debt stood at 49 billion reais, up from 31.6 billion a year earlier.
To make matters worse, Raízen acquired Louis Dreyfus Holding BV’s Biosev, a Brazilian sugar business that was bleeding cash and whose mills weren’t always the most efficient.
Raízen’s bets on second-generation biofuels, traceable sugar and sustainable aviation fuel haven’t paid off. The company, now barely worth $2 billion, is pulling the brakes on plans to make ethanol from cane residuals and its hopes to export ethanol to the US to make sustainable aviation fuel were hit with 50% tariffs.
While years of low sugar and ethanol prices have also hurt the broader industry, Raízen has underperformed peers including Sao Martinho SA and Jalles Machado SA.
In a bid to stay afloat, Raízen went through a management overhaul last year, naming Nelson Roseira Gomes Neto, a former Cosan executive, as the top boss. It also began to sell assets, having already disposed of its Leme sugar mill in Piracicaba, two hours away from Sao Paulo, and 55 units that generated electricity from renewable sources.
There’s more to come. Asset divestments so far accounted for the equivalent of just 7% of the net debt, Chief Executive Officer Gomes Neto said. The company is also in talks to sell mills in Mato Grosso do Sul state and of the group’s oil refinery and gas stations in Argentina, Bloomberg reported.
“The divestment journey will continue,” Bergman said on Thursday. “We acknowledge that this is not a short-term journey.”
It may also get a new investor, with Lazard advising Shell and Itau advising Cosan, Valor Economico newspaper reported on Thursday. The new partner is expected to bring liquidity to the company while plans to sell assets aren’t fully completed.
In Sertãozinho, as many as 1,200 people would end up losing their job at the Santa Elisa mill, a unit Raízen acquired as part of the Biosev deal.
It wasn’t how people in town expected things to go.
“I thought it could one day go back to what it used to be,” said Maurilio Biagi Filho, a former executive who ran Santa Elisa — a mill his grandfather acquired in 1936 — for years before the sale to Dreyfus. “But economic factors outweigh any other scenario.”
With assistance from Leda Alvim and Gerson Freitas Jr..
This article was generated from an automated news agency feed without modifications to text.
