Shell to provide more support for Brazil sugar-ethanol JV Raizen sources claim

Shell, the oil major and the "healthier" joint-venture partner of Brazilian sugar and alcohol producer Raizen, is prepared to invest more in a recapitalization for the "distressed" company, according to three sources familiar with the matter.

The world's largest sugar producer, Raizen, is facing financial difficulties after it posted a net loss for the third quarter of $15.6 billion ($3 billion) at mid-February. It also warned that there was "significant uncertainty" regarding its ability to continue operating.

Due to heavy investments, unpredictability of weather, and wildfires that led to lower crushing volumes and weaker harvests, the sugar and biofuels company saw its net debt rise to 55.3 billion Reais by the end of December.

Shell had been willing to invest?2.5 billion in Raizen last week but now says it will offer up to 3 billion, under certain conditions.

Shell has offered more financing in the last few weeks, according to a third source. Shell has clearly shown that it is willing to contribute a large amount of capital to the injection, even though nothing is finalized until the deal is signed.

Shell and Cosan, a Brazilian conglomerate founded by billionaire Rubens Ometo, each owns 44% of Raizen.

Sources said that Cosan could contribute up to 1 billion reals, and Ometto, Raizen's Chairman, may offer as much as 1 billion reals, depending on the financing currently being negotiated.

Raizen's?creditor said that it would require?25 billion reais to shore up its financial position, including fresh investments and proceeds from the sale its Argentine units, which are expected to fetch around $1 billion.

Shell, Cosan and Ometto refused to comment.

Raizen has appointed Pinheiro Neto, Cleary Gottlieb and Rothschild & Co to evaluate its strategic options. This led to major agencies such as S&P Global Fitch and Moody's downgrading?Raizen's ratings.

Moody's reported that the company's sugar-ethanol core segment had a weaker than usual performance due to its high leverage, high cash burn and high interest burden.

(source: Reuters)