Brazil's Raizen claims $2 billion in impairment is due to financial issues and not operational challenges

Executives said that Brazil's Raizen had no operational issues and its third quarter impairment of 11.1 billion Reais ($2.12billion) reflects financial difficulties but does not impact liquidity. This was after the company announced "significant uncertainty" regarding the firm's ability?to continue operating.

Late Thursday night, Raizen, a joint venture of Shell and Brazilian conglomerate Cosan, reported a quarterly net loss record of 15.6 billion Brazilian reais, a significant increase over the 2.57 billion Brazilian reais loss from a year ago.

The sugar and alcohol producer amassed billions of reais in net debt at the end 2024, up from 38.6 billion. They also recorded a series of quarterly losses as heavy investments were met with challenges such as erratic climate and wildfires that led to lower agricultural yields and crushing volumes.

Nelson Gomes, CEO of the company, said in a Friday conference call that reducing debt was a priority.

"SIGNIFICANT UNCERTAINTY"

Raizen's financial statement for the third quarter warned that its current financial situation was causing "significant uncertainty" in relation to the continuity of operations and that its capital structure was "under pressure from the current level of debt?and associated financial charges."

In a statement, Scotiabank stated that the disclosed results had "completely eclipsed" the reported results, and added that Raizen’s investment case "has shifted from a turnaround operation story to a distressed reorganization play." S&P Global slashed its credit rating on Raizen this week after it hired legal and financial advisers.

TECHNICAL REVISION

Raizen stated that the impairment was "exclusively a technical revision to impairment testing assumptions" related to deferred taxes assets, recoverable tax, goodwill and other non-financial asset. It had no cash impact, Raizen added.

It expects its capital expenditures for the year to be 3 billion less than initially anticipated, while saving 600 million reais during the first nine-months of the year. The financial year runs from April to the end of March in Brazil.

Gomes stated that the business would not make any comments on speculations about the options available to Raizen, its creditors, or its owners in order to change the fortunes of the company.

He said, however, that Shell and Cosan have both pledged capital to "definitely" resolve Raizen's problems, adding that the plans to sell company assets in Argentina are expected to be completed by the end of this year. Earlier in the week, it was reported that Swiss energy and commodities company?Mercuria Energy Group had advanced talks to purchase the Argentine assets. The price of these assets is expected to be more than $1 billion. Raizen and Mercuria both declined to comment.

(source: Reuters)