Raízen, the integrated Brazilian energy company, is no newcomer to sustainability. But it stands out this year in particular for a transaction that is not only highly innovative as sustainable financings go, but which also re-opens the door to a promising source of capital for projects in Brazil.
In February, the company sold a 10-year, $617 million bond in a deal that marked the first issuance in a decade by a Brazilian entity in the US private placement market.
To do so, the biofuels giant created a new company in Singapore and designed what CEO Ricardo Mussa calls a “replicable” structure that will enable the firm to tap global bond markets for years to come.
“Once we had the right structure in place, it was not difficult to find demand for our bond,” Mussa says. “There is more capital to be allocated to good biofuels projects than actual good projects in the market.”
Raízen will use the proceeds to build second generation ethanol facilities in Brazil. The bonds are underpinned by a 13-year contract signed with a single off-taker that guarantees the purchase of 85% of the ethanol to be produced.
The resources raised were also used to purchase CPRs, securitization titles in reais, issued by Raízen, anticipating future revenues and adding an extra degree of security for USPP investors.
Mussa points out that the new company, called Ethos Ergon Global Holdings, can now be used by Raízen to issue bonds in international markets in a streamlined and efficient manner. Costs should decline over time as Ethos builds a history of issuances, and the expected continued easing of US monetary policy over the coming year should also help make the prospect of international issuance more attractive to the group, he says.
Not only that, but it can also help to raise money for other producers who purchase licenses from Raízen to use its proprietary ethanol technology.
Second generation ethanol is produced from residue of corn and soybeans that were previously employed by other processes. In Mussa’s view, that means that it is a particularly sustainable kind of fuel that attracts the interest of ESG-focused funds, which is why Raízen plans to keep going to international markets for its financing needs.
“We noticed that there is much interest from investors in the US and Europe,” he says. “Outside of Brazil, there are many investors with appetite to invest in well-established technologies in areas like biofuels or green hydrogen.”