Brazil’s Cosan says $2 billion capital hike will relieve debt, shares plunge

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By Luciana Magalhaes

SAO PAULO (Reuters) -Brazilian conglomerate Cosan’s plan to raise up to 10 billion reais ($1.9 billion) through public offerings will go towards alleviating the company’s debt, an executive said on Monday, adding none of the funds would go to helping Raizen, its embattled joint venture with oil major Shell.

Although analysts welcomed the move, Cosan’s shares plunged 21%, on track for their worst day ever. The losses wiped off around 3 billion reais from its market cap. Raizen’s shares slipped 9%.

“The capital will be used exclusively to de-leverage Cosan,” CFO Rodrigo Araujo said during an investor call following the announcement of the capital hike.

Cosan reported a net debt of 17.5 billion at the end of June, stable from the end of the first quarter.

Raizen produces sugar and ethanol and is one of the biggest energy companies in Brazil, Latin America’s largest economy. Low sugarcane yields have however hit its bottom line, debt and stock performance.

Shell declined to comment on Cosan’s deal.

In addition to Raizen, Cosan’s portfolio includes logistics firm Rumo, lubricants company Moove, natural gas firm Compass and agricultural property manager Radar.

Its capital increase plan includes a 4.5 billion-real investment from BTG Pactual Holding, which has billionaire Andre Esteves among its partners, and an additional 2 billion reais from Perfin Infra Fund.

Cosan’s founder, Rubens Ometto, is set to contribute with 750 million reais through his family office, and a follow-up offering of up to 2.75 billion reais is also planned.

Cosan executives said the move was not the “only step” in Cosan’s deleveraging process, as the company will continue pursuing asset sales. It can now, however, wait for more favorable market conditions.

MIXED REACTION

Citi analysts said the deal implies a 40-50% dilution to current shareholders but should be positive as Cosan would enter “a new phase, which should be marked by deleveraging in the holding company.”

Ometto’s holding firm Aguassanta, BTG and Perfin will control Cosan through a 20-year shareholders’ agreement. The new board will be comprised of five members nominated by Cosan and four jointly appointed by BTG and Perfin.

The financial restructuring also sets the stage for leadership succession at Cosan, the company said. Ometto, or a successor appointed by him, is expected to remain chairman for the next six years.

UBS analysts said they saw Cosan emerging much healthier after the process.

($1 = 5.3378 reais)

(Reporting by Luciana Magalhaes; Additional reporting by Leticia Fucuchima; Writing by Fernando Cardoso; Editing by Sarah Morland, Gabriel Araujo and Nia Williams)