September 28, 2021 8:00 AM

Raizen - an attractive bet on the biofuel

buy

We like the fundamental profile of Raizen (BBB / - / BBB-) and expect further improvement in the company's financials on the back of good prospects for the ethanol and sugar markets. We also like Raizen in terms of credit metrics, as derivatives-adjusted net leverage has declined to 2x over the past three quarters, while current liquidity is sufficient to cover liabilities over the next three years. Raizen's ratings remain high. Even in the unlikely event of a negative action by Fitch (negative BBB outlook), both ratings will remain in investment grade.

YTM

2.6%

RISK

BBB / - / BBB-

DURATION

4.7

Renewables such as 2nd generation ethanol and biofuels will account for 70% of Raizen's growth in the coming years. The three competitive advantages of the company are corporate culture, an integrated production model and advanced technologies. The conversion of cane biomass to gas has successfully replaced diesel. A breakthrough will be the use of this technology in freight transport. The company is already in talks with truck manufacturers, approaching the required standards. The second generation ethanol pipeline will become more reliable after upgrades in 2023-2024. The 2027 issue (ISIN - USL7909CAA55) continues to look attractive compared to investment grade peers. The bonds offer a 2.6% dollar yield with a duration of 4.7 years.

Raizen operates as a bioenergy company. The Company cultivates, produces, and distributes sugarcane ethanol and biogas products. Raizen serves customers in Brazil. Raizen is the only company in the world to produce second generation ethanol on acommercial scale, reusing by-products from its production processes. Second generation ethanol is unique in that it is produced from bagasse from the production of sugar and regular ethanol. The reuse of by-products provides an increase of up to 50% in production without increasing the planted area. Also, this advanced biofuel produces 97% less greenhouse gas emissions than gasoline.