Jul 2

Largest Brazilian IPO of 2021 raises $1.3 billion

Dimitri Frolowsckii
Aug 10, 2021

Raizen, a Brazilian energy company, raised $1.3 billion in the country’s biggest IPO this year to expand its biofuel business.

Raizen, a joint venture between Royal Dutch Shell and Cosan SA, priced its shares at $1.42 each. Around 60% of the investors were international, which is more than for previous transactions this year.

It is expected that the IPO will place the company in a solid position to accelerate investments.

Following the offering, Fitch Ratings has affirmed Raizen’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDR) at ‘BBB’. Fitch has also removed the Rating Watch Negative from both the Long-Term IDRs and the USD notes.

Raízen was formed a decade ago and is Brazil’s fourth-largest company by revenue with a workforce of approximately 30,000 and one of the largest exporters of sugar on the international market.

It produces first- and second-generation biofuel from sugar cane. Its growth strategy should contribute to Shell’s long-term target to become a net-zero emissions energy business by 2050.

“Shell is committed to Raizen as we grow our renewable energy business and our presence in Brazil and Argentina,” according to Huibert Vigeveno, Shell’s Downstream Director,

Alongside turning sugarcane into ethanol for motor vehicles and other industries, Raizen also runs a network of petrol stations that sell conventional fuels and operate renewable power facilities.

As the ESG agenda races up money managers’ agenda, the IPO is a litmus  test on investor enthusiasm for transitioning from fossil fuels to cleaner energy. 

Ethanol emits far fewer greenhouse gases compared to traditional equivalents and is blended with diesel or petrol. Promoted in Brazil after the 1970s oil shock, ethanol is a primary industry across the country, where most new cars can run on both petrol and biofuel. 

Overall, the country is considered the second-largest producer of ethanol after the US. 

Raizen’s business model is expected to strengthen in the long term. Raizen will use IPO proceeds to accelerate organic growth through value investments while broadening its current portfolio of products and services.

Additionally, resources could be channelled primarily into increased production of biomass for power generation, non-fuel ethanol and pellets. The company will also invest in expanding the number of convenience stores operated jointly with the Shell Select and OXXO brands and digital sales penetration.

Despite the so-called “green bubble” bursting on stock markets earlier this year, investors continue to put money into environmentally progressive solutions. The IPO shows that owners of such companies continue to find it attractive to access this demand from investors. 

Dimitri Frolowsckii

Dimitri Frolowsckii is a political and energy analyst with over 15 years of experience in journalism.

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