Eletrobras finalizes capitalization process: share stands at R$42, and privatization is sealed

The start of the privatized company will be the trading of shares from Monday on the stock exchange

THE electrobras finalized the capitalization process this Thursday and, with that, will be privatized. The bookbuilding procedure (collection of investment intentions to form the price) was ended and the price per share was set at R$ 42. The start-up of the privatized company will be the trading of shares as of Monday on B3.

The total demand for the operation reached R$ 68 billion, well above the supply, and therefore there will be an apportionment among the interested parties. Some orders, however, were made with action below the established value and interested parties need to increase the offer to enter the business.

With the price of shares in this range, the privatization of the largest energy company in Latin America moved around R$ 33.7 billion, including the supplementary lot. There was a strong dispute to close the price per share, which ended up being R$ 42. International funds tried to bring this value down. The price was within that established by the Federal Audit Court to guarantee privatization.

The sale of Latin America’s largest energy company was the largest privatization ever carried out through the stock exchange in Brazil. In addition to being the second largest offering of shares in the world this year, the sale of Eletrobras was also the largest operation in B3 since the megacapitalization of Petrobras, in 2012, which moved US$ 70 billion.

Until yesterday, demand was hovering around R$ 55 billion, but this value rose due to the adhesion of institutional investors this Thursday. This was done by the anchor investors, who are the ones who guarantee the operation.

The Singapore Sovereign Fund (GIC) acted as an anchor investor, as did the Canadian pension fund CPPIB. On the other hand, Itaú and 3G Radar, which have relevant positions in Eletrobras in their portfolios, also made large reserves. In the list of investors who also reserved Eletrobras shares are managers such as SPX, Squadra and Truxt.

The offer also strongly reinforced the FGTS, whose demand reached BRL 9 billion, but the supply ceiling was BRL 6 billion. In total, 370,000 workers used the guarantee fund to make reservations for the papers.

The leading banks in the offering were BTG Pactual (leader), Bank of America, Goldman Sachs, Itaú BBA, XP, Bradesco BBI, Caixa Econômica Federal, Citi, Credit Suisse, JPMorgan, Morgan Stanley and Safra.

The Special Secretary for Privatization of the Ministry of Economy, Diogo Mac Cord, celebrated the result.

“Many people doubted it, but in less than two years we managed to prepare a provisional measure, approve it in the National Congress, structure the most complex model ever seen and guarantee the largest privatization in the history of Brazil,” the secretary told GLOBO.

Eletrobras’ preferred shares closed this Thursday at R$ 42.50, up 2%.

Privatization is a symbol for the Minister of Economy, Paulo Guedes, and for President Jair Bolsonaro. The government, until now, had not been able to sell any large state-owned companies directly controlled by the Union.

Even though he defended the sale of practically all public companies, Guedes had so far been unable to sign off on any major privatization — even though he had sold subsidiaries and stakes via BNDES, which totaled around R$250 billion.

Project since 2017

The Eletrobras sale project had been dragging on for years and suffered several mishaps along the way. Privatization was initially announced by the Michel Temer government in 2017. He even sent a bill to Congress on the subject, which was never voted on. Only last year did the Bolsonaro government send a provisional measure (MP) to Congress to speed up the process. Even so, the analysis of privatization by the Federal Audit Court (TCU) was in doubt until the last moment, with the outcome in May.

According to the government’s schedule, the new Eletrobras shares will begin trading on B3 next Monday, when the liquidation should also take place, that is, when investors pay the amounts related to the reserve. ADRs (stock receipts) on the New York Stock Exchange will begin trading on Friday.

A ceremony is scheduled at B3 on Tuesday with the presence of Bolsonaro, Guedes and other government ministers.

Eletrobras was privatized through capitalization on the Stock Exchange. An offer of shares was made that was not followed up by the Union. As a result, the Union’s share in the company is reduced to less than 50%. The estimate is that the government will keep around 35%, according to sources familiar with the matter.

Then, over the next few months, the government can sell part of the shares it has left, increasing revenue — since the trend is for the shares to appreciate.

Even though it still has a majority, the Union loses control of the company due to the privatization model. To prevent any public or private entity from having control over Eletrobras, the law that deals with privatization says that no shareholder or group of shareholders will be entitled to more than 10% of the votes.

Private company, no controller

In this way, Eletrobras becomes a corporation without a defined controller, following the model of other large companies in the electricity sector around the world.

In total, the government calculated the values ​​related to privatization over ten years at R$ 67 billion, but not everything goes to the public coffers. Of this amount, R$ 25.3 billion will be paid by private Eletrobras to the Treasury this year for the grants of hydroelectric plants that will have their contracts changed.

Eletrobras will need to pay this amount 30 days after signing the contracts for the plants. The capitalization money will be used for this purpose. The government intends to use the extra revenue to help pay the bill for reducing fuel taxes.

A further R$ 32 billion will also be allocated to alleviate electricity bills starting this year through the electricity sector fund, the Energy Development Account (CDE). Of this amount, R$ 5 billion will be paid this year and it is one of the government’s bets to make electricity bills cheaper this year.

Eletrobras will still contribute the remainder, around R$ 8 billion, over a decade to finance the revitalization of the São Francisco River, Minas Gerais and Goiás river basins, and for the generation of clean energy in the Amazon.

Considering the amounts involved, this is the largest privatization in the history of Brazil, since the sale of the Telebras system by the Fernando Henrique Cardoso government in 1998.

Bolsonaro government privatizations

The sale of Eletrobras is a milestone for Guedes’ management and will serve for Bolsonaro to have a great privatization to show in the campaign, since the theme was one of his campaign promises.

Until now, the first and only privatization carried out by the government had been that of Companhia Docas do Espírito Santo (Codesa), a federal state-owned company that manages ports in Espírito Santo. The auction was held in January and served as a test for the long-awaited privatization of the Port of Santos (SP), the largest in the country, still scheduled for this year.

The portfolio of the so-called Investment Partnerships Program (PPI) of the Ministry of Economy has already undergone several revisions and schedules in recent years, with inclusions and even withdrawal of projects, and currently comprises 16 state-owned companies. On the list are companies such as Correios, Telebras, Dataprev and EBC, but without any prospect of holding auctions.

Last week, the PPI Council decided to include Petrobras in the list of studies for a possible privatization – which until then did not have Bolsonaro’s support. He has also spoken out against the sale of Banco do Brasil and Caixa Econômica Federal.

The president himself recognizes, however, that an eventual sale of Petrobras would take up to four years.

Guedes has already been publicly frustrated with the performance of the privatization program, after having estimated that the sale of assets could yield more than R$ 1 trillion to the public coffers.

To show that it has delivered achievements in the area, however, the government always highlights the sales of subsidiaries such as BR Distribuidora and minority stakes from BNDES, which already reach R$ 250 billion.

In addition, the concessions program has advanced. The Ministry of Economy intends to auction a total of 90 assets by the end of 2022, with a forecast of contracting R$ 190 billion in investments. The most awaited, after the capitalization of Eletrobras, is the concession of 15 more airports, including Congonhas, whose auction was scheduled for August 18th.

Source: O Globo Agency