Cosan SA (CSAN) shares plummeted 5.73% in intraday trading on Thursday, as investors reacted to news that its subsidiary Raizen is pursuing new funding amidst rising debt concerns. Raizen, a Brazilian sugar and ethanol producer backed by Cosan and Shell, has seen its shares drop to a record low, adding pressure to its parent company.

According to reports, Raizen's net debt has climbed to 49 billion reais (approximately $9.2 billion) as of the end of June, marking a 56% increase from the previous year. The company's CFO, Rafael Bergman, confirmed during an earnings call that they are actively negotiating a capital infusion to address these financial challenges. This move comes as Raizen faces headwinds from Brazil's high interest rates and slower-than-expected returns on its biofuel and sustainability initiatives.

While a potential capital raise could alleviate leverage pressures for Raizen, analysts warn that it may lead to dilution for existing shareholders in the near term. This development, coupled with Cosan's significant stake in Raizen, has likely contributed to the sharp decline in Cosan's stock price. Investors appear to be reassessing the risks associated with Cosan's portfolio, particularly in light of the challenging economic environment in Brazil and the broader concerns surrounding the sustainability sector.