Raízen raises $1.15B in biggest Brazil IPO of the year

Shares have started trading in Raízen’s IPO – which also happens to be the largest Brazilian IPO of 2021. They raised $1.15 billion and even though shares are priced at the bottom of the suggested range, this is big news for this Shell, Cosan joint venture company.

In today’s Digest, Raízen’s business and background, the potential for Shell not only for cellulosic ethanol but also for other molecules that Shell is working on in fuels, the IPO details, and more.

What the IPO means

First, the background…Shell Brazil Holding B.V., a subsidiary of Royal Dutch Shell plc, started trading in shares of Raízen S.A., the renewable energy joint venture between Shell and Brazilian energy company Cosan, on the São Paulo Stock Exchange (known as B3 – Brasil, Bolsa, Balcão), following the successful execution of an initial public offering.

What is the point of the IPO? Well, to accelerate growth of Shell’s renewable energy joint venture in Brazil of course.

“Shell is committed to Raízen as we grow our renewable energy business and our presence in Brazil and Argentina,” said Huibert Vigeveno, Shell’s Downstream Director. “This IPO should help Raízen to grow faster, enabling it to deliver more and cleaner energy to our customers. We believe this IPO is the best way to fund the strategy and provide consistent returns on investment for the joint venture partners and new investors alike.”

Raízen is a global leader in the production of first- and second-generation biofuel from sugar cane – and according to Shell, it’s the only company in the world to produce second generation ethanol on a commercial scale, reusing bagasse, the fibrous by-product of sugar cane production.

The Shell-branded retail sites and lubricants business in Brazil and Argentina will continue to be managed by Raízen.

It is pursuing an ambitious growth strategy, as shown by the recent agreement to acquire Biosev and the integration of Shell’s lubricants business in Brazil into Raízen (both subject to deal completion), and the investment decision to expand Raízen’s second-generation biofuels production capacity. Growing Raízen will also contribute to Shell’s target to become a net-zero emissions energy business by 2050, in step with society.

IPO Details

Under the IPO, 810,811,000 preference shares have been made available to investors, at a price of R$7.40. The IPO has raised R$6.0bn (USD $1.15bn) to fund Raízen’s growth programme.

Following the IPO, and subject to an over-allotment option being exercised and completion of the Biosev acquisition, Shell and Cosan’s equity stake in Raízen will be around 43.5% each, although both will continue to hold 50% of the ordinary voting stock.

The offering was managed by the investment banking units of Banco BTG Pactual, Citigroup, Bank of America, Credit Suisse Banco Bradesco SA, JPMorgan Chase & Co, Banco Santander Brasil, XP, HSBC, Safra and Scotiabank.

Earlier this month, The Digest reported that the Raízen IPO was likely priced at more than $1.1 billion on with more than 810 million shares sold near the lower end of the expected valuation at just $1.42 per share. Concern about the company’s massive expansion plans following the acquisition of Biosev earlier this year and its hopes to significantly boost greenfield and brownfield investments may have weighed on investors’ confidence and therefore the lower opening share price and valuation.

Raízen’s background and business

Raízen was formed in 2011 as a joint venture between Shell and Brazilian energy company Cosan. It is an integrated energy company and leading producer of sugar cane, ethanol and bioenergy in Brazil. It has 26 production units, 860,000 hectares of cultivated agricultural land, a network of more than 7,300 Shell retail stations, 1,300 Shell Select convenience stores and more than 4,000 business customers in Brazil and Argentina. In its most recent financial year, 2020-21, Raízen produced around 2.5 billion litres of ethanol (excluding second generation cellulosic ethanol production).

In February 2021, Raízen announced an agreement to acquire Biosev, a leading ethanol producer in Brazil (subject to deal completion). In May 2021, agreement was reached to extend the Retail Brand Licence Agreement between Shell and Raízen, under which retail sites operated by Raízen carry the Shell brand and sell Shell fuels, by 13 more years with options to extend.

And in June 2021, agreement was reached for Raízen to acquire Shell’s lubricants business in Brazil (subject to deal completion), and an investment decision was taken on a new second-generation biofuels plant which is due to begin production in 2023 and will add 82 million litres of cellulosic ethanol production capacity per year to Raízen’s current 38 million litres.

Shell sells super smart stuff by the seashore

Ok so this news is interesting for several reasons – like Shell’s work on other molecules for fuels which will help get Shell to their net-zero emissions energy target. This all ties in together and Shell is smart in finding ways to hit that 2050 target with cellulosic ethanol as well as other routes to get there.

Like Shell’s sustainable aviation fuel MOU with Rolls-Royce to help decarbonize the aviation sector as reported in The Digest last month.

Or how about Shell’s work with National University of Singapore to develop fuels from CO2?

And a big one – Shell Catalysts & Technologies work with Australia-based Licella and their joint venture with Canfor (Arbios Biotech) to work on a low-carbon biorefinery with Licella’s Cat-HTR (Catalytic Hydrothermal Reactor) technology.

And let’s not forget a Digesterati favorite – that Shell invested in LanzaJet to help scale up SAF production. President, Shell Aviation President Anna Mascolo said, “Through our Raízen joint venture in Brazil, we have been producing bioethanol for over ten years, and we have already demonstrated production of cellulosic ethanol from waste materials. Our access to feedstocks, experience of optimizing supply chains and extensive sales and marketing business will hopefully contribute to LanzaJet creating sustainable, robust and scalable commercial operations, supporting our customers’ decarbonization ambitions for many years to come.”

Bottom Line

The Raízen IPO shows Shell is committed to pushing biofuels forward and reaching their 2050 net-zero emissions energy target. That added in with the Shell Catalysts & Technologies group which has been making headlines with several other initiatives proving their commitment to that 2050 target, there certainly could be lots of potential for Shell in Brazil not only for cellulosic ethanol but also for other molecules that Shell is working on in fuels, so stay tuned as we expect more news to come.