SAO PAULO: Troubled Brazilian sugar and ethanol producer Raizen SA says it could go into an out-of-court restructuring process as it looks for a solution for its debt woes.
Shareholders Shell Plc and Cosan SA founder Rubens Ometto have agreed to inject a combined four billion reais (US$765mil) into the company, Raizen said in a filing late on Wednesday.
Shell will contribute 3.5 billion reais, while Ometto will invest 500 million reais through his holding company.
The proposal includes a broader debt restructuring that may involve converting part of the company’s debt into equity, extending maturities on the remaining balance and divesting non-strategic assets, as previously announced.
Raizen added it seeks to ensure a “protected and orderly environment” to negotiate with financial creditors and pursue “a consensual solution, which may, if necessary, be implemented through an out-of-court restructuring process”.
The announcement follows failed negotiations between Raizen’s controlling shareholders, Cosan and Shell, over a broader rescue plan.
Private equity funds managed by Banco BTG Pactual SA, also involved in the talks, disagreed with several terms proposed by Shell and decided against injecting money into Raizen, a person familiar with the matter said earlier this week.
Raizen has struggled with high interest rates, weaker harvests and heavy investments that have yet to generate expected returns, eroding cash flow and pushing leverage to levels investors view as unsustainable.
The company ended the past year with total net debt of 55.3 billion reais, up 43% from a year earlier. Leverage rose to 5.3 times earnings before items such as interest and taxes, up from three times in the previous year.
The deterioration in its balance sheet triggered multiple credit-rating downgrades and a steep sell-off in its bonds.
As financing conditions tightened, Raizen entered talks with shareholders and creditors to stabilise its capital structure.
Pressure from creditors mounted as the company’s credit profile worsened, with banks and bondholders calling for a substantial capital injection to shore up the balance sheet.
The urgency was underscored by a US$2.1bil accounting write-down tied to deteriorating market conditions last month, highlighting the scale of the strain facing one of Brazil’s largest biofuel producers.
Brazilian President Luiz Inácio Lula da Silva personally convened a meeting in recent weeks with executives of prominent companies involved in talks to rescue the distressed sugar and ethanol producer, signalling his concern over the fallout if they failed to reach a deal. — Bloomberg
