For astrology enthusiasts, the moment experienced by the businessman Rubens Omettoone of the most influential in the country and controller of Cosan, would fit into “astral hell” – that period in which the “Universe” puts a person’s resilience to the test with a sequence of negative events. For those who don’t believe in the stars, Binho – as the businessman is called by his friends – is actually suffering the consequences of the risk he took in the past, being the purchase of a stake in the mining company Vale the most notable of them.
The Cosan group is among the 10 largest in the country. It brings together companies from the energy, agribusiness (the area that gave rise to the group), oil and gas, logistics and mining sectors. It earns R$40 billion a year and employs 55 thousand people. It is no surprise, therefore, that this “astral hell” has caught the attention of many people.
The misalignment of the stars began to be noticed at an event held in Guarujá by Esfera Brasil, a group that promotes meetings of businesspeople, in April this year. It was there that Ometto, the first businessman to have a private agenda with President Luiz Inácio Lula da Silva in his third term, changed his tone and publicly expressed their dissatisfaction with high interest rates and the heavy tax burden, factors that especially punish the most indebted companies, such as Cosan.
“With the government getting in the way, wanting to tax everything, it’s not possible,” said Ometto to an audience full of businesspeople, but also government representatives. The speech was classified as a “sincericide” by many of those present. And it would have generated disagreement between the businessman and Lula. The understanding was that the criticisms made actually had another background: the dispute between the businessman and the government in the process of defining the name for Vale’s presidency, in which neither emerged victorious.
Is the writing worth it?
To “read” the nebulous astral chart of Cosan you have to go back two years. In a sophisticated operation, which mixed cash share purchases with derivatives, Cosan built a 4.9% position in October 2022 Valevalued at R$18.5 billion at the time. The transaction would be financed with future dividends of Raízenthe group’s sugar and ethanol company, and Compassof natural gas.
The investment caused surprise when announced, especially given the fact that Ometto always had a controlling position in his investments, which would not be the case at Vale. Cosan adopted a protocol declaration of “portfolio diversification”. There was even speculation about some synergy between the DirectionCosan’s railway operator, with the railways operated by Vale (the Vitória a Minas and Carajás Railways).
But what we saw next was a great effort to act much more actively in the mining company. Ometto indicated Luis Henrique Guimarãesthen CEO of Cosan and one of his trusted men, to Vale’s board in March 2023. At that time, there was just over a year left until the board decide whether to keep Eduardo Bartolomeo in charge of the mining company. And Luis Henrique came to be seen as one of the natural candidates.
What upset the midfield is that Lula, recently sworn in for his third term, decided to participate in the game. With the intention of once again influencing the former state-owned company, the government tried to impose its own name in Bartolomeo’s place: that of the former Minister of Finance, Guido Mantega.
Given the impasse, Vale’s board then hit the “security penalty”: it did not renew with Bartolomeu, an executive who did not shine in Lula’s eyes, and chose in August, unanimously, a homemade solution: financial vice-president Gustavo Pimenta , for command the largest mining company in the country.
The episode strained Ometto’s relationship with the government and showed that the R$18.5 billion check to try to exert influence on Vale ended up being expensive. Less than two years after the completion of the operation, Cosan still has to pay for the purchase of Vale’s shares from the banks and at a stage in which the dividends from Raízen and Compass, the main financing guarantees, are not so rich. This is where some practical measures needed to be taken.
In April, Cosan disposed of 0.78% of its shares in Vale and gave up the option to buy another 1.68% of the mining company, helping to contain the escalation of its debt by R$2 billion.
Cosan today estimates that its 4.15% stake in Vale is worth R$11.3 billion. And, if the stake was sold, it could reduce its net debt by more than 15%.
Putting out fires
This imbroglio resulted in a significant worsening of Cosan’s balance sheet. The results for the third quarter showed a 57% drop in net profit compared to the same period of the previous year, to R$293 million.
With significant debt growth this year and performance below expectations, Ometto triggered changes in Raízen’s command at the end of October.
The first step was to place Nelson Gomes, until then CEO of Cosan, in charge of the sugar and alcohol arm. The arrival of the president of holding to put out the Raízen fire shows the extent of the group’s concern for its subsidiary. Gomes replaced Ricardo Mussa, the executive who took Raízen to the stock exchange, which ended up at Cosan Investimentos. Just under a month after the change, Mussa resigned from the conglomerate.
One of Gomes’ first initiatives at the ethanol company was to put assets up for sale. According to the InvestNews, the group put Raízen’s stake in the network up for sale Oxxo. And, according to sources, Raízen is still trying to negotiate the sale of a package of plants, valued at R$1 billion.
Other ways to raise funds and reorganize debt are on the radar. One of them would be a secondary share offering (follow-on) from Raízen. Analysts interviewed by InvestNews state that the operation would be viable if it weren’t for the negative moment in the stock market.
The other would be the IPO of Compass, but in the American market. This operation is also considered promising. But, as it is considered a kind of crown jewel, controllers tend to be very strict in their decision: they will only go to market when they are sure of having found the best moment. Especially after the IPO (in the USA) of another company in the group, Mooveof lubricants, failed at the beginning of October.
Yellow sign at Raízen
Cosan’s net debt reached R$59.7 billion in the third quarter, an increase of 59% compared to the same period last year. And, with the Selic rate in double digits for months, this debt is very expensive: in the first nine months of the year, the company disbursed R$2.51 billion in interest alone, 27.4% more than what was paid in the same 2023 period.
Currently, almost a quarter of Cosan’s debt (24.1%) is linked to the CDI. The amount paid in interest, on the other hand, can still be covered by what the group has been receiving from its investees, although the relationship has been deteriorating.
As a result, leverage – which is the relationship between net debt and operating profit, a variable closely monitored by investors and analysts of any company – rose from 1.7 times to 2.9 times.
Although the debt taken out by Cosan to buy Vale marks the negative moment experienced by Cosan, a large part of the group’s debt today is concentrated in Raízen. In one year, Raízen’s net debt grew 19.5%, to R$35.9 billion, the majority of which (R$32.5 billion) is linked to foreign currency – an additional problem given the strong devaluation of the real, a currency that is the company’s main source of revenue.
There is seasonality in Raízen’s debt: due to purchases for the beginning of the sugar cane harvest, the value is usually higher in the period between July and September.
But, as the graph belowthe intensity is greater in this cycle than in previous ones and, all else being equal, the tendency is for an even greater debt at the end of the next quarter. Leverage, 2.6 times Ebitda (operating result), is well above what the company proposes to deliver at the end of the accounting year, in March 2025, 1.8 times, according to the balance sheet released at the beginning of the harvest. .
Looking at the business, two of Raízen’s initiatives did not progress as expected. The main one, second generation ethanol (E2G), the bet that took Raízen to the stock market, did not show the expected benefits. The fuel is produced from agricultural waste and is a sustainable alternative. But adding value with an ESG touch has not yet generated a revenue differential — such as a premium payment for the product — as expected.
The other, to a lesser extent, was in the We GroupRaízen’s partnership with the Mexican company femsaowner of Oxxo and Shell Select stores. Investment in retail was understood as a type of “distraction”, that is, an inappropriate energy expenditure for a group that has its main focus on infrastructure and commodities. The company box is burning to support the investment in local retail – neighborhood markets, which would be natural if retail were the core of the group. Before leaving Raízen, Ricardo Mussa, already spoke openly to anyone who would listen that stake in Nós was for sale.
When contacted, Cosan declined to comment.
