Raízen’s plan to split into separate fuel-distribution and sugarcane businesses has put a hard question to investors: can the mills survive on their own?
On a call with analysts Tuesday, executives spent much of the session defending Raízen Energia — the entity that will hold the group’s remaining 24 mills — after skeptics pressed on whether it can generate enough cash without its former fuel-distribution parent propping it up.
The skepticism tracks Raízen’s own numbers. The company expects the sugar and bioenergy unit to keep burning cash through at least the 2028/29 harvest, with a return to positive cash flow only in 2030 — and even that hinges on two variables largely outside management’s control: higher agricultural yields, which require both better execution and cooperative weather, and a meaningful rebound in sugar and ethanol prices.
To hit those targets, Raízen needs ethanol prices roughly 30% higher, with hydrous ethanol rising from around 2.25 reais a liter today to near 3.00 reais. Global sugar prices would need a similar jump, above 19 U.S. cents a pound from the 2030/31 crop onward.
“Raízen Energia depends on a series of external factors that we view as optimistic assumptions for generating cash,” said UBS analyst Matheus Enfeldt on the call. “How should investors think about a spin-off that doesn’t look resilient enough to weather a commodity cycle?”
Chief Financial Officer Lorival Luz, who is steering the restructuring, didn’t dispute the rough patch ahead but said the company’s out-of-court plan — already backed by more than 80% of creditors — was built with it in mind. “The first two years are a tight plan,” he said.
That’s also why Raízen loaded more of the group’s debt onto the fuel-distribution business rather than the mills. Proceeds from the roughly 7-billion-real sale of its Argentine operations will flow to Raízen Energia too, giving the sugar unit a lighter starting balance sheet: net debt of 2.2 times EBITDA, versus 4.8 times for Raízen Combustíveis.
The fuel business can carry more leverage because it’s performing well operationally — a selling point management is counting on to draw in investors. The mills, by contrast, need more room to recover, so Raízen negotiated longer maturities for that debt: none of Raízen Energia’s obligations come due until six years after a court approves the restructuring plan, Luz said.
There’s also a lever that isn’t baked into the projections: more asset sales. Raízen intends to keep shedding mills, without committing to a timeline, and has identified another 10 million to 15 million tons of annual crushing capacity as candidates.
The logic, executives argue, is that a smaller Raízen is a stronger one. “We need to find the right size to be the most efficient competitor in the industry again — which we once were,” Gomes said.
This story was translated with the assistance of artificial intelligence.
