Brazil biofuel producer Raízen seeks to raise $1.34bn in IPO

A joint venture between Royal Dutch Shell and the energy conglomerate Cosan that produces biofuel derived from sugarcane is seeking to raise R$6.9bn ($1.34bn) through a stock market listing that would rank as one of Brazil’s biggest so far this year. 

Raízen, which was formed a decade ago, is Brazil’s fourth-largest company by revenue with a workforce of about 30,000. 

It said in a securities filing on Wednesday that it planned to sell a roughly 8 per cent stake through an initial public offering on São Paulo’s B3 bourse.

An indicative price range for the shares was listed at R$7.4 to R$9.6, which would give the business a valuation of between approximately R$70bn (about $14bn) and R$100bn, according to a person familiar with the matter.

If successful, that would put it among the top-10 IPOs on record in Brazil.

Alongside turning sugarcane into ethanol for motor vehicles and other industries, Raízen runs a network of petrol stations that also sell conventional fuels and operates renewable power facilities. It also bills itself as one of the largest exporters of sugar on the international market.

As the climate emergency races up money managers’ agenda, Raízen’s listing will test investor enthusiasm for the transition from fossil fuels to cleaner energy. 

Raizen intends to spend the proceeds — which at the midpoint of the price range equate to R$6.9bn — on projects including new plants for renewable products. Its production includes “second-generation” ethanol, a technology that enables agricultural waste to be transformed into biofuel.

“We don’t exploit the full potential of the [sugarcane] plant yet,” chief executive Ricardo Mussa said in an interview before the company announced its intention to float. “With second-generation ethanol you can produce 50 per cent more without any added acreage.”

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Raízen generated earnings of R$6.6bn ($1.3bn) before interest, tax, depreciation and amortisation in the year to March 31 on revenue of R$114.6bn.

“Today if you look at the core business, it is distribution of petrol, ethanol and diesel, plus selling ethanol and sugar. The other areas are much smaller for now, but they are growing,” said Obede Rodrigues, a portfolio manager at the asset manager Iridium Gestão.

Ethanol emits far less greenhouse gases when combusted compared to traditional equivalents and is blended with diesel or petrol in several countries. Raízen also sells it as an ingredient for plastics, beverages, cosmetics and pharmaceuticals.

Promoted by the former military dictatorship in Brasília following the 1970s oil shock, ethanol is a major industry in Brazil, where most new cars are able to run on both petrol and the biofuel. 

The country is the second-largest producer of ethanol after the US, where corn is used as the main raw material. 

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However, there are concerns that the use of crops and trees as energy sources will compete with food production for land. 

Analysts predict a greater role for ethanol as governments seek to reduce emissions from motor engines, or as a transitional fuel in certain countries ahead of widespread electric vehicle adoption. 

India recently brought forward a target for petrol to contain 20 per cent blended ethanol to 2025. The global ethanol market is forecast to grow at an average rate of about 2.7 per cent annually between 2020 and 2025, according to IHS Markit. 

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Raízen is looking to take advantage of an IPO boom in Brazil, as businesses tap the growing numbers of domestic retail investors pouring money into public equities. Other debuts this year have included the steelmaker CSN’s iron ore unit, the insurer Caixa Seguridade and the laser hair removal company Espacolaser. 



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