Cosan Limited’s (CZZ) joint venture with Shell International Petroleum Company Limited is given the name Raizen, a combination of Portugese words for root and energy. Raizen recently received unconditional regulatory approval from the European Union. Cosan and Shell anticipate that the transaction would consummate in the first half of 2011.
Raizen was formed on August 25, 2010 through a binding agreement between Cosan and Shell. The company will employ over 40,000 people and is estimated to have a market value of $12.00 billion. It will primarily focus on the production of ethanol, sugar and power along with the supply, distribution and retail of transportation fuels.
The joint venture will be one of the largest ethanol producers in the world with 2.2 billion litres of annual production capacity. The company will have 23 ethanol plants with annual sugarcane crushing capacity of 62 million tons.
Moreover, deployment of next generation biofuel technologies will be made easy through Shell’s equity interests in Iogen Energy, a company producing cellulosic ethanol and jointly owned (50:50) by Iogen Corporation and Shell and Codexis, a leading provider of optimized biocatalysts.
Electricity will be produced from sugar cane bagasse in the cogeneration plants. Raizen will possess the electricity co-generation projects of the 23 units, of which 12 already have energy sales contracts with an installed capacity of approximately 900 MW.
The joint venture’s distribution business, having annual sales of about 20 billion litres of fuels will be carried out in roughly 4,500 retail sites. Sugar production of 4 million tons will be done in 23 mills.
Cosan’s total contribution in the form of sugar and ethanol assets, cogeneration plants (7 existing, 2 under construction, 6 yet to be built in 3-4 years), downstream assets, and stake in Uniduto will be roughly US$4,925.0 million. The company will also assume net debt of approximately US$2,524.0 million related to assets and in addition, $500 million of additional debt from BNDES.
Shell’s total contribution of US$4,925.0 million will include $1,625.0 million of cash contribution, downstream assets and aviation fuel businesses in Brazil, interest in logen Energy and Codexis. These 2G technology assets and earn-out mechanism could result in a future cash contribution, estimated to be US$300.0 million by Cosan.
In our opinion, the Cosan-Shell joint venture will enable better access to ethanol consumer market and result in increased competitiveness in biofuels and fuel distribution businesses. The dual enterprise will also offer better scope for development of second generation technology with improved debt ratios through more capital and increase in cash profile, and better growth prospects.
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