Brazil’s Cosan steps on the brakes amid economic, political risks

Brazil’s Cosan is stepping on the brakes amid rising domestic interest rates, high inflation and political uncertainty associated with the presidential election year. 

On Wednesday, the energy-focused holding said in its 4Q21 financial results release that due to the worsening 2022 macroeconomic situation it has adopted a more conservative investment approach and will make greater efforts to optimize its capex. 

"In a situation of rising interest rates, we'll be more conservative with some moves that made more sense from a [financial] return point of view and make less sense today because of the opportunity cost," CEO Luis Henrique Guimarães told an investor webcast.

On Monday Cosan had terminated negotiations to create a joint venture with Porto Seguro, dubbed Mobitech, which would have operated in the mobility sector. 

Guimarães said the decision to discontinue the Mobitech project was very difficult, but necessary. 

“The capital allocation required for the project at this time was at odds with the level of conviction we have that it makes more sense to repurchase some shares,” he said. 

The strategy to have a portfolio of listed companies remains. After the IPO of biofuel producer and distributor Raízen, Cosan plans to list its natural gas and electric power firm Compass Gás e Energia, as well as lubricant producer and distributor unit Moove.   

Meanwhile, the company is waiting for Brazilian antitrust authority Cade to approve the acquisition of the 51% stake that state-owned oil firm Petrobras holds in gas distribution holding Gaspetro. 

"The regulatory time limit [for the deal analysis] ends by our reckoning, at the end of June. We have the belief that it will happen within the allotted time,” Guimarães said. 

He highlighted that the group is eyeing opportunities for the market segment where gas prices are set freely in Brazil. 

“Today, there’s practically no supply of alternative gas to be sold to free customers, but we keep looking at options in neighboring countries, options to buy terminals, to buy [gas] from third parties.” 

Compass is building a liquefied natural gas (LNG) terminal in São Paulo state and is disputing the right to build and operate the Subida da Serra gas pipeline, which would take the regasified fuel to the distribution grid of Comgás, Cosan's gas distribution utility.  

Cosan posted a recurring net profit of 411mn reais (US$82.2mn) in the fourth quarter, up 58.5% from a year earlier. The company’s recurring Ebitda totaled 2.76bn reais, down 6.1% from 4Q20. 

The net profit for 2021 was 2.74bn reais (+91.5%), with an Ebitda of 11.9bn reais (+18.3%). 

Investments amounted to 2.54bn reais (+31.7% y-o-y) in the fourth quarter and 8.10bn reais (+30.5%) in the full year.