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One of the largest sugar producers in Brazil, Raizen Energia SA, is currently in negotiations to acquire the local branch of Louis Dreyfus Holding BV, according to Bloomberg, citing sources familiar with the situation.
Under the proposal, to complete the deal, Louis Dreyfus will exchange its sugar production division, Biosev SA, for a minority stake in Raizen, a joint venture of Royal Dutch Shell Plc and Cosan SA. News of this has led to a 25% increase in the value of Biosev's shares in São Paulo.
Additionally, the deal includes the repayment of Biosev's debt. This involves a possible increase in the debt repayment amount of 7.3 billion reais (1.4 billion dollars) in exchange for partial prepayment from Louis Dreyfus.
In an official statement released on Wednesday evening, Biosev confirmed ongoing negotiations with Raizen regarding a potential merger of the companies, as well as discussions with banks to restructure its debt. Official representatives of Raizen and Louis Dreyfus declined to comment at this time.
The completion of this deal could be one of the largest for Raizen and help Biosev address longstanding financial issues caused by debts, which led Louis Dreyfus to allocate approximately 1 billion dollars to its division. Louis Dreyfus is seeking to increase its liquidity as its owners look for funds to repay loans and are in talks to sell a minority stake to the Abu Dhabi wealth fund ADQ.
Biosev's financial problems began when the market was oversupplied with sugar and high gasoline prices, resulting in reduced demand for sugarcane ethanol. Global sugar prices fell by about 50% compared to their peak in 2016.
In the financial year ending in March, Biosev incurred record losses of 1.55 billion reais, marking the ninth consecutive year of negative profit for the company. The company's debt increased by 22% compared to the previous year due to the devaluation of the Brazilian currency, leading to breaches of contract terms.
