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Cosan looks to buy BG stake in Brazil's Comgas
Release Time:2012-4-17
Brazil's Cosan (CSAN3.SA) is in talks to buy British BG Group's (BG.L) stake in the gas distributor Comgas (CGAS5.SA), in a deal that would further diversify the Brazilian energy group.

The plan raised investors' concerns about new debts and cost savings and sent Cosan's shares lower.

BG and Cosan confirmed on Thursday their negotiations over BG's 60 percent stake in Comgas, Brazil's largest gas distribution company, without mentioning the value of the deal that is still in preliminary discussions.

Their statements followed a report by Brazilian magazine Exame that the companies were discussing the sale of BG's stake for 2.5 billion reais ($1.37 billion).

The talks highlight aspirations by Cosan, Brazil's largest sugar and ethanol producer, to become an integrated energy firm, entering fuel distribution and retail to battle high transport costs and dependence on state-led oil company Petrobras.

Last year Cosan launched the joint venture Raizen with Royal Dutch Shell (RDSa.L) aimed at leveraging its sugar, ethanol and energy production and grabbing a larger share of the fuel distribution market currently dominated by Petrobras (PETR4.SA).
Shell also holds more than 18 percent of Comgas through its controlling partnership with BG and independent holdings by Brazilian subsidiaries.

Investors met news of Cosan's plans with skepticism, however, sending its stock down over 5 percent on Thursday before it pared losses to a 3.3 percent drop, closing at a one-month low of 32.40 reais.

"The deal seems in line with the strategy of making Cosan more diversified, but I don't see the synergies in this merger," said William Alves, an analyst with XP Investimentos.

Analysts also questioned what the deal would mean for Cosan's efforts to improve its debt rating. Cosan transferred a net debt of 5.24 billion reais to Raizen last year, bringing its debt-to-equity ratio to its lowest in years.

The company's net debt totaled 3.62 billion reais at the end of last year, equal to about 40 percent of shareholder's equity and more than seven times earnings before interest, taxes, depreciation and amortization - a measure of operating profit known as EBITDA.

Investors also questioned why Cosan would be buying BG's Comgas stake at an apparent discount, judging by the value reported by Exame. Judging by share prices on Thursday, the market value of BG's stake should be worth around 3 billion reais, according to Alves.

"It's hard to see why BG would sell so cheap," he said.

For BG Group, the Comgas sale could raise cash for huge investments in more profitable production operations in Brazil's most promising deep-sea oil fields, reducing the need to sell part of its offshore stakes.

Reuters reported in December that China's Sinopec (600028.SS) was a favorite to buy part of BG's offshore oil rights for as much as $20 billion, potentially muscling out Petrobras in a move that raised political concerns in Brazil.

Analysts said last month that BG had told them it was not planning to sell off its big Brazilian oil and gas finds in the near future.

BG shares rose 1.2 percent to close at 1,384 pence on Thursday. Common shares of Comgas (CGAS3.SA) jumped 5.9 percent, while its more widely traded preferred shares closed 1.1 percent higher at 46.15 reais.
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