Recoveries Under Raizen RJ Plan Hinge on Distribution Business Valuation; Sum-of-Parts Analysis Puts Combined Reorganized Enterprise Value at BRL 39B

Credit Research: Ed Cerullo

Relevant Documents:
Blowout Materials
Amended REJ Plan

• As Raizen’s plano de recuperação extrajudicial, or REJ plan, garners increased support, Octus believes recoveries will hinge on a successful outcome of the eventual sale of its fuel distribution business referred to as Raizen Combustiveis, or RSA, assuming it covers its level of take-back debt, which has a change of control at par.
• Market prices for Raizen’s outstanding bonds imply the combined market value of the take-back debt to be issued by both the RSA and sugar and ethanol business, or RESA, under the plan, of around 96 cents per $1 of face. We believe the take-back debt at the to-be-formed distribution credit silo, RSA, should trade at par implying around a price of 86 to 88 cents on the dollar for the RESA business notes.

Raizen creditors are slated to receive an estimated 23 billion Brazilian reais ($4.5 billion) in take-back debt at the distribution credit silo, or RSA, and roughly BRL 11 billion in take-back debt at the Raizen Energia credit silo, or RESA. This assumes all subject claims elect option A under the plan, which we expect as option B features an 80% nominal haircut and payment in March 2047.

Additionally, assuming the option A election, subject creditors shall receive about 81% of the post-reorganization equity subject to a one-year lockup period. The plan specifically provides that after the implementation of the segregation plan, meaning the full “corporate, operational and financial separation of their Energy Business and their Fuel Distribution Business,” the board shall “use its best efforts to promote a competitive process for the sale of all or of shares representing the Control of the Fuels Distribution Business.”

Given the plan provides for segregation of Raizen into two business units and the ultimate sale of the distribution business, we employ a sum-of-the-parts approach based on peer trading multiples and ongoing M&A processes to value the discrete business units. Furthermore, Raizen’s business plan projections include the results of its Argentina distribution unit in the projections for Raizen Energia for the 2026/2027 crop year ending March 2027, while Raizen has subsequently announced the sale of this business for a total economic value of $1.42 billion, or roughly 3.6x last 12 months’ EBITDA. We therefore exclude Argentina results from Raizen Energia 2026 expected EBITDA, and instead include the sale proceeds in our derivation of implied value.

Regarding the Brazilian fuel distribution business, or RSA, competitor Ultrapar is understood to be marketing its Ipiranga fuel distribution business at about 5.4x trailing 12-month EBITDA at the midpoint, above the 3.6x that the Raizen Argentina fuel distribution business fetched but below the 6.6x where Vibra trades on a TTM basis. Vibra, competitor 1 in the chart below, currently has a 24% market share while Ipiranga, or competitor 2, is estimated to be about 16%, according to Raizen’s blowout materials.

Peer comparables for the sugar and ethanol business are limited, with Sao Martinho the only direct comparison, trading at just under 2.9x TTM EBITDA.

We assume the estimated 5.4x multiple for Ipiranga is the best proxy for Raizen’s Combustiveis business unit, implying a 15.1% unlevered free cash flow yield on estimated 2026 unlevered free cash flow. We estimate a 2.5x multiple for Raizen’s Energia business given its significantly weaker margin and higher leverage profile as compared with Sao Martinho.

As shown above, our sum-of-the-parts analysis suggests a blended multiple of 4.16x and a combined enterprise value of BRL 39 billion. Assuming net debt of BRL 32.8 billion at emergence, this implies a roughly BRL 6 cent share price for the reorganized equity.

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Business Plan Projections

On a consolidated basis, Raizen is projected to have negative cash flow of BRL 2.4 billion during the 12-month period ending March 31, 2027, driven by a BRL 3.6 billion outflow in the first quarter ended June 30, 2026, when working capital of BRL 2.1 billion is projected to be consumed. The consolidated business is projected to begin generating cash with BRL 581 million in the third quarter and BRL 819 million in the fourth quarter, driven in part by a combined BRL 2.5 billion release of working capital in the back half of the crop year.

The anticipated cash flows and leverage profiles for Raizen’s business units, as forecast by the company, are shown below. Cumulative net cash flow at Raizen Energia is projected to be just under negative BRL 2 billion through the 2028/2029 crop year ending in March 2029. Meanwhile the distribution credit silo is projected to generate a cumulative BRL 8.2 billion in unlevered segment cash flow during the same time period.

Sustaining free cash flow before capital expenditures for expansion is shown below for the business units, including interest payments for both restructured debt and debt that falls outside of the REJ process.

Projections for Raizen Energia, however, assume the interest on the take-back debt will PIK through the 2029/2030 crop year ending March 2030. Sustaining cash flow for Raizen Energia is projected to turn positive during the 2029/2030 crop year.

Asset Sales

As Octus has reported, Raizen announced the sale of its Caarapó Mill in Mato Grosso do Sul, Brazil, as well as the assignment of its associated owned sugarcane and supplier agreements. The mill processed approximately 3.5 million tons of sugarcane during the 2025-2026 crop year.

Raízen said the BRL 760 million price would be paid in cash at closing with the sale leaving the company with a portfolio of 23 mills and an installed crushing capacity of approximately 69 million tons of sugarcane per crop year.

The sale aligns with Raizen’s divestment strategy outlined in its REJ plan with respect to Raizen Energia, which specifies that it shall “aim to optimize the mill portfolio so as to ensure cash generation for Raízen Energia and its subsidiaries” and “ensure that “Raízen Energia and its subsidiaries maintain an aggregate sugarcane crushing capacity between approximately 35,000,000.00 (thirty five million) and 40,000,000.00 (forty million) tons per year.”

Under the Raizen Energia take-back debt, net proceeds from mill-asset sales other than Raízen Argentina trigger a mandatory pro-rata prepayment of 75% within 10 business days, subject to deferral if a majority of energy debtholders so elects. Closing remains subject to approval by Brazil’s antitrust authority, CADE.

Separately, on July 8, the São Paulo Third Bankruptcy and Insolvency Court declined to issue an order approving Raízen’s request for ratification of the sale of its Argentine operations to Latam Downstream Holdings Ltd. and Silver Projects I SAU for $1.42 billion.

The court held that Brazilian law provides no judicial control over asset sales by companies in REJ. The court instead recorded, for declaratory purposes, that no judicial impediment to the sale exists.