Creditors are seeking roughly 90% equity in Raizen.

What creditors want

Two people involved in the negotiations described to journalists that bondholders and other lenders are pushing to swap the bulk of Raizen’s liabilities for equity, aiming to convert about 29 billion reais — roughly $5.7 billion — of debt into shares. The demand would give creditors close to a 90% ownership stake, according to the people familiar with the talks.

This would be a big change in control, wiping out much of the debt and leaving the current owners with a smaller share.

The push for a near-total equity grab is part of a broader effort by creditors to rework terms after the company ran into a stretch of weak cash flow. Lenders want clearer capital structures and a bigger slice of any upside if asset sales succeed.

Negotiations began earlier this week and were expected to intensify as lenders and Raizen weigh options — including larger swaps and fresh injections of cash from the joint-venture partners.

Why Raizen opened talks

Raizen, the Brazil-based sugar, ethanol and fuel group that’s jointly owned by Shell and Cosan, has been under pressure after a period of heavy investment and poor harvest conditions. Wildfires and reduced cane crushing hurt production and strained operating cash flow.

The company and its owners agreed to a previous deal with bondholders last month, but those terms haven’t fully quelled creditor concerns.

Lenders want to make sure they’re protected if asset sales don’t bring in the money they expect. They’re also pressing the industrial partners for fresh capital to shore up liquidity.

Shell pledged an investment in Raizen last month, but Cosan has struggled to commit an equal amount, according to the people familiar with the situation. That uneven backing has fed creditor demands for a more creditor-heavy restructure.

Assets on the table

Part of the appeal for creditors in a big debt-for-equity swap is that it could clear the way for sales of assets worth billions. People close to the talks said asset disposals could total as much as $10 billion if sales proceed without the drag of contested liabilities.

Raizen has been negotiating potential deals, including talks with Mercuria Energy Group over a refinery in Argentina and a network of service stations. Those assets alone could fetch at least $1 billion, the people said.

But uncertainty around the debt talks has made buyers cautious. Negotiators fear that buyers will hold off until there’s clarity on how much of Raizen’s liabilities would remain on the table after a swap — and who would control the reorganized company.

What the owners face

The joint-venture structure complicates any solution. Shell and Cosan are the industrial anchors. Each has different capacity and appetite for further capital injections.

Shell committed 3.5 billion reais to Raizen last month. Cosan, the Brazilian conglomerate, has been unable to match that amount, according to people familiar with the talks. That gap matters — creditors are pushing for more money from both owners as part of any restructuring.

If lenders win a 90% stake, Shell and Cosan would see their combined holding reduced sharply unless they take part in a large follow-on capital raise. That would change governance and the strategic path for Raizen.

Owners would have to decide whether to accept dilution, provide fresh capital, or negotiate alternative terms that give creditors significant governance rights while preserving some shareholder upside.

How the swap could play out

Swapping debt for equity usually gets complicated. Creditors will want safeguards, spots on the board, and clear ways out if they take on risks. Raizen’s management and shareholders will push back to protect ongoing operations and long-term value in Brazil’s fuels and biofuels markets.

International bondholders — including those holding Raizen debt in the United States — are part of the mix, one of the people said. That broad creditor base means any plan has to win support across different classes of lenders and legal jurisdictions.

Restructuring could be paired with an ambitious asset-sale program: selling noncore refineries, retail networks or overseas units to raise cash and simplify the company. But buyers will demand clean title and clarity about lingering claims or contingent liabilities.

Creditors like equity because it lowers the company’s debt and gives them a chance to profit if the business bounces back and sales go well. For current owners, the cost is reduced control and potential loss of future upside without more capital.

Market implications and next steps

The discussions are likely to move quickly if a critical mass of lenders lines up behind a plan. People involved said talks had already intensified midweek, with both Brazilian and foreign creditors taking part.

Raizen’s managers, Cosan and Shell have so far declined to comment publicly, people familiar with the situation said. That reticence is standard while confidential negotiations try to secure buy-in.

Debt holders will test whether a near-total swap can attract the votes and legal approvals needed to restructure without protracted litigation. If they can’t, the company might pursue targeted asset sales to satisfy creditor demands instead.

Right now, and if buyers like Mercuria step forward with firm offers for specific assets, a partial solution could emerge: sell selected units, use proceeds to reduce debt, and leave a smaller residual claim for creditors to convert into equity on more moderate terms.

Either way, the immediate weeks will be about lining up creditor support. The mechanics — who gets how many shares, what governance rights creditors receive, and what capital injections are required from Shell and Cosan — will define whether Raizen keeps operating under industrial owners or shifts to a creditor-led structure.

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Shell committed to invest 3.5 billion reais in Raizen last month.