Cosan, Brazil’s biggest sugar and ethanol producer, is to raise up to $2bn on the New York Stock Exchange in a further demonstration of the rapid growth of the industry in Brazil.
The news follows mounting speculation that the company could face a takeover bid from a large commodities trader or other international player. Last Friday the Wall Street Journal carried an interview with a senior executive of Archer Daniels Midland, the agribusiness group, who said the company had not ruled out trying to buy Cosan.
Cosan’s planned US listing suggests it is more interested in buying other companies than in being bought.
The company has grown rapidly through acquisition. It now owns 17 mills, two refineries, two port facilities and numerous warehouses, according to a filing made on Monday to the US Securities Exchange Commission detailing the offer.
The filing describes the company as the largest grower and processor of sugarcane in the world; also the largest ethanol producer in Brazil and second largest in the world; and the largest sugar producer in Brazil and one of the three largest in the world.
Brazil is the world’s second biggest ethanol producer, with output of about 4.6m gallons compared to 4.9m in the US, the biggest producer. But Brazil’s sugarcane-based industry is substantially more efficient than the maize-based industry in the US and has attracted a flood of foreign and local investment in recent years.
Unica, the São Paulo state industry association, said investors would spend $15bn in Brazil between now and 2012, building an estimated 90 sugar and alcohol mills. Production of sugarcane is expected to almost double over that period.
Cosan’s planned operation includes the recent creation of a Bermuda-based holding company, Cosan Limited, which will be listed in New York and São Paulo (through Brazilian depository receipts), and an offer to Cosan’s existing shareholders to exchange their shares for those in the new company. The offer will be led by Credit Suisse, Goldman Sachs and Morgan Stanley.
Cosan listed on the São Paulo Stock Exchange in November 2005, raising about $400m. Its share price has since gained about 125 per cent, compared to a 75 per cent increase in the main market index. Its market capitalisation in São Paulo is about R$6.8bn.
Brazil’s farm sector has grown strongly in recent years on booming global demand for commodities led by China.
Ethanol is the most important of the current generation of biofuels offered as alternatives to gasoline and other fossil fuels. Brazil offers the most efficient and environmentally-friendly conditions for its production.
However, significant growth in exports has so far been hindered by barriers in developed markets including subsidies, tariffs and a shortage of retail distribution.