Brazilian sugar and ethanol producer, Cosan (CZZ), recently announced the completion of repurchase of its entire 8.25% Perpetual Notes worth $450 million. These notes were issued in 2006. The company replaced the notes with syndicated bank loan of the same amount.
The new debt with a 2 year term period and quarterly pre-payment facility will be allocated to Raizen and will likely bring down its annual interest expense by US$25 million.
We believe the company's liability management process will prove beneficial over time as in the last reported quarter; the company's net results plunged 80.3% year over year due to higher cost of sales, selling and interest expenses, which more than offset Cosan’s top-line growth. Exiting the third quarter 2011, the company’s long-term debt balance grew by 26.3% year over year and 14.3% sequentially to US$3,540 million.
Cosan is the largest sugar and ethanol producer in Brazil and ranks third in sugar and fifth in ethanol production in the world. Apart from its core operations, the company is also engaged in energy production from sugarcane bagasse.
Fuel distribution is another of Cosan's businesses with the company aiming at becoming the third largest distributor in Brazil after the consummation of the recently announced joint venture with Shell International Petroleum Company Limited.
Moreover, along with expectations of a steadily expanding sugar and ethanol businesses, the company's energy co-generation business is also likely to get a boost from an increase in installed capacity with the addition of 6 new projects by 2012. Annual capacity is expected to surge to 1,213 MW.
However, prevalence of dry weather conditions in the Brazilian Center South region remains a cause of concern. Moreover, operations in a highly cyclical industry with sensitiveness to domestic and international changes in supply and demand can prove problematic for Cosan. The company faces stiff competition from peers like Archer Daniels Midland Company (ADM).
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