Shell Targets Growth for Raizen After IPO

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Royal Dutch Shell is looking to use funds from the initial public offering (IPO) of its stake in Brazilian biofuels giant Raizen to expand its reach as it looks to build out its low-carbon business ventures in the years ahead. Raizen, a joint venture (JV) with Brazilian energy company Cosan, debuted on the Brazilian stock exchange B3 following an IPO that will raise upwards of $1.15 billion (OD Jul.14'21). At an initial share price of 7.40 reis ($1.43), the offering values Raizen at around $14 billion, making it one of the five largest companies in Brazil. Shell and Cosan will each hold a 42.5% interest in Raizen following the offering. Riazen’s portfolio includes the largest biofuels production capacity in the world and a large stable of retail outlets, putting it firmly at the center of Shell’s energy transition strategy (IOD Apr.12'21). Both ares are key contributors to Shell’s “Growth Pillar” that the oil giant is counting on to help it remain profitable as the energy transition progresses. “Raizen, of course, is an important part of our portfolio and our downstream ... strategy in terms of our access and participation in biofuels,” Shell CFO Jessica Uhl told investors. “It makes us one of the most significant players in the sector.” Shell has no plans to take cash out of the Raizen business, CEO Ben van Beurden said. “This is basically funding a joint venture that has tremendous opportunities to continue to invest in second-generation bio projects, but also continuing to grow,” he explained. Proceeds will help fund the pending acquisition of rival biofuels maker Biosev, announced earlier this year for around 5% of Raizen’s shares and $670 million. It will also help fund the expansion of Raizen’s second-generation biofuel production, which uses sugarcane waste to produce fuels. The company is looking to increase its annual production capacity of second-gen biofuel from 38 million liters to 120 million liters by 2023. In addition to its biofuel production, the Raizen JV includes some 7,300 fuel stations and 1,300 convenience stores. Uhl cautioned against thinking Shell might follow the plans of competitors such as Repsol and Eni, which are packaging up renewables and retail businesses to sell stakes either in public offerings or to strategic partners. “I'd say it's a pretty distinct set of circumstances that makes that the right choice for this business,” she said. “I wouldn't necessarily see it as a template. Noah Brenner, London

Equity and Debt Markets, Biofuels (incl. SAF), Corporate Strategy
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