By Brazil Stock Guide – Bondholders and banks are pressing Cosan (CSAN3 BZ) and Shell (SHEL LN) to anchor a sizable capital increase at Raízen (RAIZ4 BZ) as the Brazilian energy and sugar producer grapples with financial strain.
A group representing both international bondholders and domestic and foreign banks has sent letters to the company’s shareholders calling for an equity injection of as much as R$25 billion, according to people familiar with the matter.
The proposal envisions Cosan and Shell launching a share offering backed by a joint commitment of between R$10 billion and R$12 billion. The remaining funds would be raised in the market. One alternative under discussion would allow external debt holders to convert their bonds into equity, using 100% of face value in the calculation, even though the securities are trading at roughly 45% to 50% of par in the secondary market.
Brazil’s development bank BNDES has signaled it could support the capitalization, according to people familiar with the talks. Should the offering fall short of the required amount, bank creditors could explore additional measures. Lenders have hired FTI Consulting as adviser.
Tensions Over Restructuring Plan
Creditors argue that the restructuring framework presented by shareholders places a disproportionate burden on lenders. In their view, Cosan and Shell have the financial capacity to inject a more substantial amount to stabilize the company. Over the past decade, the two shareholders received about R$20 billion in dividends from Raízen, according to people familiar with the matter.
An initial letter was sent on Thursday (19) by local lenders including Santander Brasil (SANB11 BZ), Itaú Unibanco (ITUB4 BZ) and Bradesco (BBDC4 BZ), alongside Moelis, which represents bondholders. A second letter followed on Sunday (22), adding foreign banks such as JPMorgan (JPM US), Bank of America (BAC US), BNP Paribas (BNP FP), Sumitomo Mitsui Financial Group (8316 JP) and Crédit Agricole (ACA FP).
Senior executives from Cosan and Shell have been meeting in London since last week to address Raízen’s financial position.
Debt Structure and Opposition to Breakup
Raízen’s gross debt totals approximately R$73 billion. About 40% is held by bondholders, another 40% by banks, with the remainder spread across Brazil’s local capital markets through debentures and agribusiness receivables certificates.
Creditors have also opposed a proposed split of the company into separate sugar and ethanol and logistics businesses. They argue that such a move, at a time of financial distress, would leave them exposed to the weaker segment. In their assessment, any corporate separation should only occur after the overall debt has been addressed.
Under a separate shareholder proposal, Raízen would carry out a roughly R$3 billion capital increase, with Shell contributing R$1.5 billion, Cosan R$1 billion and Rubens Ometto R$500 million. The plan would then proceed with a corporate split, followed by debt-to-equity conversions.
In a later phase, private equity funds managed by BTG Pactual (BPAC11 BZ) could inject R$5.3 billion into the newly formed companies. A secondary follow-on offering would allow creditors who converted debt into shares to sell their stakes.
Raízen has also been divesting assets since last year to shore up liquidity. The sale of its Argentine operations is said to be in its final stages, and people familiar with the situation indicate that the transaction could achieve better terms if completed after a successful recapitalization.
Cosan declined to comment. Shell didn’t respond to requests for comment.
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