Shell, the healthiest joint venture partner in troubled sugar and ethanol producer Raízen, is willing to inject significant capital to recapitalize the company and avoid a bankruptcy reorganization, according to three people familiar with the matter.
Raízen, one of the largest sugar producers in the world and also an important fuel distributor in Brazil, is in a serious financial situation after recording a net loss of R$15.6 billion in the third quarter, in mid-February, when it also warned of a ‘relevant uncertainty’ about the company’s ability to continue operating.
The company saw its net debt increase exponentially, reaching R$55.3 billion on December 31, after an unfortunate combination of large investments, unstable weather conditions and fires in sugarcane fields, which led to lower agricultural yields and reduced crushing volumes.
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Until last week, Shell was willing to inject R$2.5 billion into Raízen, but has since indicated that it would offer up to R$3.5 billion, an amount subject to certain conditions, according to two of the sources.
However, a third source said support suggested by Shell had increased in recent weeks and that nothing was set in stone until a deal was reached, although he added that the London-listed company was willing to contribute a disproportionate amount to the capital injection.
Shell and its joint venture partner, Cosan, each own 44% of Raízen, while 12% of the shares remain in free circulation.
Cosan, which faces its own problems and is undergoing a financial restructuring, could contribute R$1 billion, while Raízen board chairman Rubens Ometto — also a Cosan shareholder — could provide up to R$1 billion, conditional on a financing deal currently being negotiated, the sources said.
A creditor told Reuters that, to bolster its finances, Raízen would need approximately R$25 billion, including new capital and proceeds from the sale of its Argentine unit, which should yield around US$1 billion.
Shell, Cosan and Ometto declined to comment.
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Earlier this month, Raízen appointed the law firms Pinheiro Neto and Cleary Gottlieb, together with Rothschild & Co as financial consultants, to evaluate its strategic and financial alternatives.
The announcement triggered rapid downgrades of Raízen’s credit ratings by important agencies, including S&P Global, Fitch and Moody’s.
In its report, Moody’s cited the company’s high leverage and continued negative cash flow generation, high interest burden and weaker than normal results in the core sugar and ethanol segment.
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