Valor found that the Canadian fund Canada Pension Plan Investment Board (CPPIB) can make a billionaire contribution to the Cosan group. According to sources, the negotiations, which began when the company was still in talks to enter the control block of América Latina Logística (ALL), continue advanced. The value of this contribution is about $414 million and it will be allocated to Cosan Infraestrutura. Although the group, controlled by businessman Rubens Ometto Silveira Mello, formalized yesterday the end of negotiations with ALL, as Valor PRO – the real-time information service of Valor – anticipated, they did not give up the opportunity to advance in infrastructure, especially in port and rail areas.
With a portfolio of about $180 billion in investments, the Canadian fund seeks investment in infrastructure in emerging markets. In Brazil, this fund is the largest individual shareholder of Aliansce, one of the leading malls in the country. When contacted by Valor, the CPPIB said it does not comment on market rumors.
Part of the funds that can be contributed in Cosan would be aimed at ALL, but with the end of the negotiations between the two companies, the group should use the money for future business in the area of infrastructure and logistics that they are still prospecting.
The desire to advance in infrastructure is an old dream of Cosan. Negotiations with ALL, officially announced in February last year, were taken for granted – the company offered $371.5 million for the purchase of 49.1% stake in the railroad company (or 5.6% of total capital), which belong to the shareholders Ricardo Arduini, board member of ALL, his wife Julia Dora Koranyi Arduini, and GMI (Global Market Investments L.P.), represented by the chairman of the board of directors of ALL, Wilson de Lara. A year and a half later, the talks go wrong. In recent months, for the business to move forward, the pension funds Previ, Funcef and BNDES were included in the operations, which also would sell part of their shares.
In recent days, partners of ALL and Cosan advanced in governance, which had impeded conversations. The most delicate point was the limits that BNDES wanted to impose, through non-compete clauses, for the performance of the Cosan’s logistics company, Rumo Logística. BNDES, which also talks for the pension funds, wanted Cosan did not compete in the entire country. Cosan considered that the clause could only be true for areas where ALL operates, i.e., from the Center-West to bottom, according to sources. A model to this point was developed, but the conversation was really stopped when Cosan has proposed capital increase of ALL, which would dilute the share of the current partners.
In a conference with the market yesterday, Marcos Lutz, CEO of Cosan, said the group already has a committed team, led by the business executive Júlio Fontana, to study opportunities in infrastructure, especially in intermodal terminals and port system, in order to create integrated solutions. Cosan does not rule out entering as independent operator in railroads, but it needs to have a clearer definition of the regulatory framework of the sector, which is under discussion in the federal government. According to him, Rumo already has an entire assembled structure, and the agreement in place with ALL should not be affected with the end of the negotiations.
It is uncertain to ALL. The entrance of Cosan in the control block was cited by analysts as a risk to the group’s shares. That is because the market had fears that Cosan would take ALL to invest more in infrastructure – affecting its balances – precisely at a time when the company’s numbers are weaker than expected. However, the known aggressive management of Cosan could achieve more efficiency for ALL, considered an inflexible company.
Either way, investors welcomed the news of the end of negotiations. Yesterday, the shares closed 8.6% higher, at $3.95. Other concerns for ALL, however, continue – such as the economic slowdown, competition with highways and the regulatory framework. Furthermore, there is a recurring concern with cash flow of the railroad company – negative in recent times. Our primary concern continues, because ALL are still struggling to generate cash, according to a report by Morgan Stanley.
In the first half, free cash flow was in the red at $124 million. And the company’s expectation was that the end of the investment in the railroad expansion to the city of Rondonópolis (state of Mato Grosso) – which cost $313.24 million – could help to reverse the situation. But the contributions are almost completed and the cash remains negative. Sources say the group will seek new ways to capitalize. When contacted, ALL reported that the matter was discussed in the sphere of shareholders and it brings no impact to the daily life of the company. Iesa and Hyundai joined in a business of $326.57 million.
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