EM LATAM CREDIT: Chairman of Brazil's Cosan: Raizen Restructuring: Positive Take
Raizen SA (Baa3 /BBB neg /BBB)
"Rubens Ometto Silveira Mello, founder of the Cosan group, said the restructuring process at Raízen, the company’s joint venture with Shell, is underway to reduce debt" - BBG / Valor Int'l
• Chairman of Brazil conglomerate Cosan points out what we see from the latest financials that most of their businesses are doing well except for Raizen, in an interview with Brazil news outlet Valor International.
• To put the interview in context, profitability has been declining and leverage rising at sugar cane processor, ethanol production and fuel distributor Raizen. Rating agencies and the markets have reacted negatively in the past months, though recently sentiment has improved with the expectation of asset sales.
• Chairman Ometto discussed management changes and a restructuring process with the goal of getting back to basics, streamlining and returning to the core businesses of sugar cane processing, ethanol production and fuel distribution under the Shell brand.
• The company recently announced a sale of 29 solar power projects to investment firm Patria and closed on a previously announced deal to sell a sugarcane processing and ethanol production plant in Leme, Brazil. Raizen is also seeking to sell its Argentina refinery according to reports last week and the total amount of proceeds from all these asset sales could be as much as BRL15bn according to analysts interviewed by Brazil news outlet Estadao.
• Net debt was BRL34.264bn at end of Q1 2025 so with all proceeds of asset sales going toward debt reduction could reduce company net leverage from a reported 3.2x to we estimate about 2-2.5x which we think could prevent a downgrade from S&P which currently has the rating on negative outlook.
• The chairman also commented on high local interest rates in Brazil which if they persist could stunt Cosan’s capex investment program of BRL10-12bn per year.
• Ometto viewed US tariff policy towards China as potentially positive for Brazil as the Chinese are buying more agricultural products from Brazil in place of U.S. products.
• Ometto commented on Brazil economic policies, suggesting that the habitual tax evader bill making its way through Congress could go a long way to solving the country’s fiscal challenges as he estimated BRL120-150bn a year is lost from tax evasion.
• RAIZBZ 2054s were last quoted T+272bps, 16bps wider QTD and 22bps wider than when tapped February 2025. The bonds are quoted 85 bps wide to comparably rated Vale (VALEBZ; Baa2pos/BBB-/BBB).
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