By Brazil Stock Guide — Raízen is preparing a sweeping corporate restructuring that could heavily dilute existing shareholders, reshape its control structure and pave the way for Raízen Energia to trade separately on Brazil’s B3 exchange, according to documents released by the company on Wednesday.
Raízen is proposing to increase its authorized share-capital limit to as many as 200 billion shares, a move required to carry out the equity issuance contemplated under its court-approved out-of-court restructuring plan.
The increase does not mean the full amount will necessarily be issued. But the economic terms already disclosed indicate that the recapitalization could radically alter the relative ownership of existing shareholders.
The restructuring plan calls for 45% of the debt subject to the restructuring to be converted into equity, alongside at least R$3.5 billion in fresh capital led by Shell and a potential additional R$500 million investment from a vehicle linked to Aguassanta, the holding company associated with businessman Rubens Ometto. The remaining 55% of the affected debt is expected to be refinanced through new financial instruments, according to information previously disclosed by Raízen.
Based on the economic terms established for the debt-to-equity conversion, the shares currently outstanding could represent just over 7% of the company’s post-recapitalization equity, implying ownership dilution of close to 93% under a full-conversion scenario.
Raízen currently has about 10.35 billion shares outstanding, including 8.99 billion common shares and 1.36 billion preferred shares. Cosan and Shell each hold roughly 44% of total share capital, while the free float accounts for about 11.9%.
The dilution estimate does not mean existing shareholders would lose an equivalent percentage of the economic value of their investments. The recapitalization will also reduce debt, inject new cash into the company and be accompanied by the distribution of Raízen Energia securities to shareholders.
Raízen Energia separation
The restructuring also calls for a capital reduction of up to R$35 billion, without reducing the number of Raízen shares outstanding.
Rather than receiving cash, shareholders would receive securities issued by Raízen Energia S.A., or RESA, in the same class and proportion as their holdings in Raízen.
The transaction is a central part of Raízen’s plan to separate its businesses into two standalone structures: Raízen Energia, housing sugar, ethanol and bioenergy operations, and the fuels and lubricants business. The company had previously identified the separation as one of the key pillars of its financial restructuring.
Before the distribution can take place, Raízen Energia will need to upgrade its registration with Brazil’s securities regulator, the CVM, from Category B to Category A and seek the listing of its common shares, preferred shares and, if applicable, Units on B3’s Level 2 corporate-governance segment.
In practical terms, the transaction would allow current Raízen shareholders to directly hold securities in two separate corporate structures once the restructuring is completed.
That also means dilution cannot be assessed solely by looking at an investor’s percentage ownership in the remaining Raízen entity. Part of the value currently embedded in Raízen would be transferred to shareholders through securities issued by Raízen Energia.
New control structure
The restructuring is also expected to significantly reshape Raízen’s corporate governance.
The company is proposing to remove all current members of its board of directors and replace them with a new board comprising seven directors and seven alternates, whose terms would become effective once the recapitalization contemplated by the restructuring plan is approved.
The documents explicitly contemplate a scenario in which there would no longer be a controlling shareholder holding more than 50% of Raízen’s voting capital.
That would allow the company’s first board under the new ownership structure to be elected, on an exceptional basis, for a unified three-year term rather than the two-year mandate that would apply thereafter.
Today, Cosan and Shell jointly control Raízen and each owns 50% of its common shares. On a total-capital basis, each holds roughly 44%.
The entry of creditors as shareholders through the recapitalization is therefore expected to substantially reduce the relative ownership of the current controlling shareholders.
Shell retains significant influence
Shell would nevertheless retain meaningful governance rights under the post-restructuring structure.
Directors nominated by Shell Brazil Holding would be deemed, for purposes of Raízen’s bylaws, to have been elected by holders of the new Class B preferred shares.
The separation of Raízen Energia also depends on written acceptance of the so-called Separation Plan by Shell and the Transition Committee. Shell is additionally leading the fresh-capital injection of at least R$3.5 billion contemplated under the restructuring.
New preferred-share class
Raízen also plans to create a new class of preferred shares, to be known as Class B preferred shares.
The preferred shares currently outstanding would be redesignated as Class A preferred shares, with no changes to their existing economic rights.
The new Class B shares would carry the same economic rights as the Class A shares — including equal participation in dividends, interest on equity and other distributions — but would have limited voting rights on specific matters set out in the restructuring plan.
Creation of the new class requires approval from shareholders representing more than half of Raízen’s outstanding preferred shares. The company has called a special meeting of preferred shareholders for Oct. 30.
Raízen also plans to establish a Unit program, with each Unit consisting of one common share and one Class A preferred share.
The board would be authorized to determine the procedures and terms for implementing the program and for converting shares into Units.
Dilution could be substantial
The final level of dilution will depend on the number of shares ultimately issued, creditor participation across the alternatives offered under the restructuring plan and the final terms of the recapitalization.
Still, the order of magnitude illustrates the scale of the potential change.
Raízen currently has about 10.35 billion shares outstanding, representing 100% of the company’s equity.
Under a scenario in which the debt portion earmarked for conversion is fully converted and the planned capital injections are completed, those existing shares could represent only around 7% of Raízen’s post-restructuring equity.
Put another way, a stake equal to 1% of Raízen today could represent only about 0.07% of the recapitalized company, before taking into account any rights to participate in the capital increase and the Raízen Energia securities that shareholders are expected to receive.
The economic impact, however, will differ from the headline dilution percentage.
Raízen will simultaneously be reducing debt, receiving fresh capital and separating assets that will ultimately be distributed to shareholders. The final value outcome for investors will therefore depend on the valuation of the post-restructuring Raízen as well as the value of the stake they receive in Raízen Energia.
Transformation goes beyond debt
The measures will be submitted to an extraordinary shareholders’ meeting and a special meeting of preferred shareholders on Oct. 30.
Raízen’s board approved the proposals at a meeting held on Sept. 29. The company said the measures represent important steps toward strengthening its financial structure and corporate governance.
The documents show, however, that the restructuring goes well beyond debt refinancing.
The plan is set to create a Raízen with new capital, new shareholders, a new board, new share classes and two separate corporate structures, marking one of the most significant transformations in the company’s history.
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