By Brazil Stock Guide – Shell Plc (SHEL LN) is preparing to inject 3.5 billion reais ($) into Raízen SA (RAIZ4 BZ), while Cosan SA (CSAN3 BZ) is not expected to participate directly in the capital increase, according to a report by Valor Econômico on Tuesday (3), citing people familiar with the matter.
The newspaper reported that billionaire Rubens Ometto will contribute 500 million reais through his family holding company, Aguassanta. Cosan, however, is unlikely to match Shell’s contribution, a move that could dilute its stake in the Brazilian sugar and ethanol producer if the transaction proceeds as discussed.
One person familiar with Cosan’s thinking said the company views Shell’s proposal as insufficient to resolve Raízen’s financial challenges. “Shell’s proposal is simpler, but it is not sustainable for Raízen, which will remain leveraged,” the source said.
The structure of the capital increase has yet to be finalized but could take the form of a follow-on share offering. Under this scenario, Shell would subscribe 3.5 billion reais and Aguassanta 500 million reais. Without a proportional contribution, Cosan’s stake would be reduced.
Speaking at a press conference on Tuesday (3), Shell Brazil President Cristiano Pinto da Costa confirmed the planned investment and said he expects Cosan to make a proportional capital injection.
Raízen has faced financial strain for more than a year. Last month, Valor reported that Cosan had presented an alternative restructuring plan involving a 3 billion reais capital increase, with 1.5 billion reais from Shell, 1 billion reais from Cosan and 500 million reais from Ometto.
That proposal also included splitting Raízen’s sugar and ethanol operations from its fuel distribution assets, followed by a debt-to-equity conversion. In a subsequent phase, private equity funds managed by BTG Pactual (BPAC11 BZ) would inject 5.3 billion reais. A secondary offering would then allow creditors to sell shares received in the debt conversion.
Shell opposed the breakup of Raízen and instead proposed the 3.5 billion reais capital injection. Creditors, including holders of offshore debt and domestic banks, also resisted the split. Advised by FTI Consulting, they sent a letter to Raízen shareholders calling for a more substantial capital increase of up to 25 billion reais, well above Shell’s proposal.
Cosan declined to comment, Valor reported.