Brazil's Raizen Debt talks progress as parties reach equity conversion consensus
Three people with knowledge of the situation said that talks between creditors and investors of Brazilian sugar and ethanol producer Raizen were progressing to avoid a judicial restructuring. They are also focusing on the?governance?structure and other important issues.
Negotiations for a debt-ridden Raizen to avoid court started in April. They must be concluded by mid-June. Two people have confirmed that creditors and shareholders are close to an agreement on converting 45% to 50% the debt of the company into shares. This will dilute the stakes held by joint venture partners Shell and Cosan and could reshape Raizen's Board. Raizen announced in March that it had reached an agreement out of court to restructure approximately 65 billion reais (13.3 billion) worth of debt. The 90-day period to get enough support to approve the final agreement was to apply the new payment terms to all covered claims.
Raizen and Shell refused to comment on debt conversion negotiations.
Shell has reiterated its plan to inject 3.5 billion reais to bail out Raizen. It also said that it would continue to work with Raizen's management and creditors to secure the future of the company. Shell's creditors will not be able to push it to provide more money than the 3.5 billion dollars that Shell has already offered, according to one of the people. This is due to the 12% oil export tax that Brazil's government imposed to protect consumers from the rising oil prices caused by the Middle East conflict.
Two parties who requested anonymity because the talks are confidential, believe that a deal can be reached by the deadline. However, they acknowledged that there are still some unresolved issues.
CHAIRMAN'S RESPONSIBILITY IN A QUESTION
The future of Raizen’s current chairman Rubens Ometto is still a question. He is injecting only 500 million reais for the restructuring. Shell is contributing 3.5 billion reais. Cosan is currently dealing with debt and won't use its IPO of Compass for its gas subsidiary, which raised 3.2 billion reals last week.
Cosan has declined to comment.
Will it make sense for Ometto to continue as Chairman after the?reorganization of the company? One of the people said, "We don't yet know."
Ometto declined to comment.
Sale of ARGENTINA Assets
One source said that Raizen was also in discussions to sell a refinery in Argentina and hundreds of gas station to Mercuria Energy Group. This Swiss-founded energy and commodities trader is expected to fetch between $1 billion to $1.5 billion in the deal.
Person said that the transaction would be announced when the financial restructuring discussions are completed, which will reduce the risk for the buyer.
A second source said that creditors and shareholders were also debating whether the proceeds from the Argentina deal would be used to consolidate?Raizen?s cash position or reduce its debt.
Mercuria has not responded to requests for comment. Sources said that several factors helped to move negotiations forward. These included international interest in fuel supply in Brazil, police crackdowns on organized crime in gasoline stations and Raizen's difficulties resulting from weather-related problems compounded with high interest rates.
(source: Reuters)
