Fitch downgrades Raizen to BBB-, places ratings on watch negative

Investing.com -- Fitch Ratings has downgraded Raizen S.A. and Raizen Energia S.A. to ’BBB-’ from ’BBB’ and placed the ratings on Rating Watch Negative due to deteriorating capital structure.

The credit rating agency cited increased debt and weaker-than-expected operating cash flow for the fiscal year ending March 2026 as key factors in its decision. Without major asset sales or capital injections, Fitch expects Raizen’s net leverage to remain around 4.0x for an extended period, which is inconsistent with a ’BBB’ rating.

Fitch also downgraded Raizen Fuels Finance S.A.’s senior unsecured notes due in 2027, 2032, 2034, 2035, 2037 and 2054 to ’BBB-’ from ’BBB’. The agency affirmed Raizen’s National Long-Term Ratings at ’AAA(bra)’ with a Stable Outlook.

The Rating Watch Negative reflects challenges in executing deleveraging initiatives, including operational improvements, capital injections, and asset sales. Fitch plans to review the ratings within six months.

According to Fitch, Raizen’s controlling shareholders are actively discussing a potential equity injection, possibly adding a third controlling shareholder, with a resolution expected in the short term. The company is also pursuing asset sales, though timing and execution remain uncertain.

Fitch forecasts EBITDA of BRL11.9 billion and negative cash flow from operations of BRL4.3 billion in fiscal 2026, improving to BRL12.6 billion EBITDA and positive BRL5.6 billion cash flow in fiscal 2027. High interest expenses and elevated capital expenditures are expected to generate negative free cash flow through 2027.

The agency noted that Brazilian sugar producers should benefit from high fixed sugar prices for the 2025-2026 crop, though current market conditions favor ethanol over sugar. Fitch projects sugar prices around USD 18 cents/pound in 2026, while ethanol prices in Brazil are trading above expectations at BRL2.85 per liter.

Raizen maintains strong market positions as the leader in Brazil’s sugar and ethanol industry and ranks second in the Brazilian fuel distribution market. The company’s ratings still incorporate potential support from shareholders, including Shell plc (LON:SHEL) and Cosan S.A.

For the rating to be upgraded, Raizen would need a capital injection and asset sales that lead to a net leverage ratio below 2.5x consistently. The Rating Watch Negative could be resolved if there is material deleveraging within the next three months.

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