RIO DE JANEIRO, BRAZIL – The company, which could be worth between R$80 (US$15.2) billion and R$100 billion on B3, presents its renewable energy identity.
The first presentations in Brazil for the most anticipated initial public offering (IPO) in 2021 started on Thursday, May 6th: Raízen’s, the joint-venture between Cosan and the Anglo-Dutch Shell. This is still the so-called “investor education” phase. This is the stage when the company makes its début as an investment project. This is when it creates its business identity.
Raízen has introduced itself to major international funds. It brought with it to the meetings (albeit virtual), an ID as a bioenergy company, with all the indicators it already has and the plans for the next 10 years. Therefore, a predominantly renewable energy business. In the latest fashionable letters: ESG – acronym for environmental, social, and governance factors.
International funds are more used to reading this as a bioenergy operation rather than simply a sugar and ethanol one, as many local managers still perceive the business. Hence the decision to start with the foreign market. But facing the current lack of interest of international investors in Brazil at this moment will be no small feat.
Although Raízen’s value is not the central issue of debate at this time, the market is working with parameters mentioned here and there of a valuation between R$80 billion and R$90 billion. Some people say it could reach R$100 billion. However, all the market knows is that no valuation has even been submitted to the board of directors.
In any case, there is no doubt. Raízen is to 2021 what Rede D’Or was to 2020, with its R$11 billion offer and the debut of a R$115 billion company on B3.
Ten years
The registration request for the offering at the Securities and Exchange Commission (CVM) is expected for June, which is precisely the month in which the joint-venture between Cosan and Shell completes 10 years. In this first decade, the partners built the joint venture. The company, which was born with reciprocal buying and selling options in case something goes wrong in the coexistence, has already cancelled these mechanisms and it was agreed that Rubens Ometto, Cosan’s reference shareholder, holds the position of lifetime chairman of the business.
The partners have more than doubled the operation in this period. EBITDA increased from R$3.7 billion in 2011 to the R$10 billion expected for this year, considering the acquisition of Biosev. With the transaction, the group holds 15% of the sugar and ethanol market in Brazil – the largest, by far. In addition, the partnership also holds the fuel distribution operation, with the management of the Shell brand in Brazil, a market share of around 30%. The values considered by the market, therefore, indicate a valuation between 8 and 10 times the EBITDA for 2021.
The strengthening of its image as a renewable energy company was the reason for Raízen’s decision to start presenting its business to international investors. With the IPO, the company no longer depends on its two partners’ resources, and its capital structures, to finance itself. It gains independence. It is almost like coming of age.
For Cosan, the listing of Raízen will also be quite an event. Currently, analysts estimate that the company is valued between R$45 billion and R$50 billion within the holding company. Although the amounts commented on for the IPO are not precise, the potential is clear.
Ometto’s plan is to list all the businesses he controls. With the success of Raízen’s offer, it will be necessary to restart the Compass process (owner of Comgás) and start the lubricants’ Movee process. Rumo Logística is currently traded on the stock exchange.
The future
Raízen’s plan is to double in size in 10 years. And, in this future, 70% of the business’ EBITDA will come from renewable products. Although today it is an ethanol producer, Raízen is taking what it calls a “bioenergy park” to investors, which includes 2nd generation ethanol, cogeneration, biomass and biogas.
Those who have already heard the presentations emphasize that Raízen advocates ethanol and sugarcane as part of the energy matrix of the future, not only for Brazil, but for the world. For the sector’s advocates, this energy source has great advantages even over electrical planning – which is entirely dependent on a universe powered by batteries and, therefore, lithium.
Clean air
For every megajoule of energy produced from ethanol, 23 tons of carbon (CO²) are emitted. If it is second-generation ethanol, the emission drops to 16 tons. These figures compare with 101 tons for American gasoline, 87 tons for Brazilian gasoline (blended with ethanol) and even 56 tons for corn ethanol.
On Cosan Day, held in March, the group was rolling out the red carpet for Raízen’s renewable energy identity. And one of the pages featured a comparison with none other than Tesla, Elon Musk’s global sweetheart, with its electric cars and rockets. Raízen prevents the emission of 5.2 million tons of carbon a year, while Tesla would need 11 years to prevent 3.7 million tons.
All this is the E in ESG. But this identity is possible because the group put the G, of governance, on the right track after the broad corporate restructuring that eliminated the holding company structure and Cosan Limited, which since 2007 had left a bitter taste in the market.
Sexier
In order not to escape the favorite topics of the global post-pandemic season beyond ESG, Raízen has also been highlighting its capacity to create value within the distribution segment with its retail operation, through convenience stores – where the company sees potential to grow fivefold, from 1,100 units to 5,000 – and through the digitalization of payments with Shell Box. The network’s app handled R$215 million in January this year, compared to R$29 million in April 2019, when it was launched. The potential for a TPV, total transacted, of R$10 billion a month is expected.
What about the cycle?
Those who are closely familiar with the structure planned for Raízen’s IPO, as the company has been talking to investors, point out that domestic funds will also be relevant in the offering. The group has important partners in the country, such as Dynamo and Atmos management companies. Their perception will be relevant in building the narrative.
In Brazil, Raízen will face a more biased comparison with other sugar and ethanol companies, although they focus their production on sugar (rather than ethanol). Domestic investors, in fact, before even hearing from the company were wondering about the value attached to the deal. The argument? The exposure to a cyclical sector, with ups and downs.
Many have been and will continue to be the doubts about how the company will double in size in 10 years and how much acquisitions are included in this account. On Cosan Day, the company pointed to its capacity to double production using only its current plants.
But what investors want – and will want more and more, the closer the discussion of values gets – are details. They are the secret that will allow the company to have the potential, in practice, to double in value, in relation to the current perception, within the Cosan holding.
Source: Exame