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DEALTALK-Brazil rushes to exit Eletrobras control as obstacles abound
2017年8月29日 / 下午4点15分 / 1 个月前

DEALTALK-Brazil rushes to exit Eletrobras control as obstacles abound

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By Guillermo Parra-Bernal, Luciano Costa and Rodrigo Viga Gaier

SAO PAULO/RIO DE JANEIRO, Aug 29 (Reuters) - Brazilian President Michel Temer’s rush to sell control of the country’s biggest power utility after acknowledging a wider budget deficit this year could come to haunt him as legal and political roadblocks threaten to slow the plan.

The government opted to privatize Centrais Elétricas Brasileira SA, or Eletrobras, after divergences mounted with management over how to fix the company, four people familiar with the plan told Reuters. Investors cheered the move last week, sending common shares up 50 percent in a day.

Policymakers have until the end of this week to explain how the plan will be executed. But they have yet to figure out how to structure Eletrobras’ new listing, set potential caps to the participation of new investors and determine whether the plan requires congressional approval, the people added.

“It’s a Gargantuan task, because you don’t often have to sort out constitutional limits, diplomatic issues and strategic issues accumulated for decades in about a week,” said one of the people, who requested anonymity.

Making Eletrobras a company with dispersed share ownership would dislodge politicians from control of a utility that for decades provided their cronies with lucrative jobs. The move is Temer’s most daring effort to reduce a bloated state amid public outrage over his party’s role in Brazil’s worst graft scandal.

If successful, the deal could transform an industry long hobbled by erratic state meddling and a chronic lack of investment, while helping cut power rates in the long run, UBS Securities analyst Marcelo Sá said.

Temer expects his austerity program to shrink a record budget gap and cut transfers to money-losing government firms. The National Treasury has used 4.3 billion reais ($1.4 billion) of taxpayer money to support Eletrobras over the past year.

“Eletrobras is a bottomless pit,” one of the sources added.

That shares have retained most of their gains since the announcement is a sign investors hope the deal will come swiftly, said Marcelo Gomes, head of Alvarez & Marsal Holdings LLC’s Brazil unit. He took a “flurry of calls from clients eager to know about the plan” the day after the announcement.

The stock surge also eased resistance from holders of Eletrobras preferred shares, who are entitled to special dividend privileges, one of the people added.

Rio de Janeiro-based Eletrobras declined to comment, as did the Energy Ministry and Temer’s office.

OPAQUE STRUCTURE

Before claiming victory, Temer must first untangle Eletrobras’ opaque corporate structure.

Less than a dozen officials are working on the plan to split off two strategic Eletrobras assets that cannot be sold to private investors: scandal-ridden nuclear energy subsidiary Eletronuclear, and the Brazilian government’s stake in Itaipú, a giant hydropower dam it jointly owns with Paraguay.

Under Brazil’s 1988 Constitution, no private-sector company can be involved in domestic nuclear energy activities. In the case of Itaipú, Paraguay may have to authorize moving the Brazilian stake to a wholly state-owned subsidiary of Eletrobras, two of the people said.

Some doubt whether listing Eletrobras in the São Paulo Stock Exchange’s strictest governance segment is feasible, while others worry about the tight timetable for the deal as the October 2018 presidential election looms, the people said.

One delicate issue is whether the plan needs congressional authorization. While the 1961 law that created Eletrobras set a minimum 51 percent voting stake for the government, a 1997 law governing state asset sales could validate the privatization.

“It appears to me that the plan was structured from back to front to fight resistance from any side,” said Marcos Elías, a partner at São Paulo-based advisory firm Modena Capital who had long warned his clients that Eletrobras could be privatized.

REGIONAL BOSSES

The end of government control of Eletrobras could force a renegotiation of part of the utility’s 48 billion-real debt to avert early repayments, the people said, adding that Eletrobras must also reassure investors how it will deal with 65 billion reais in contingent liabilities.

The announcement last week - a short statement released after market hours that surprised the company’s top brass - reflects government concerns that public aversion to privatizations could disrupt the process, the people said.

In addition, the plan could trigger a short-term increase in power rates that could irk household and industrial consumers, analysts said.

Regional political bosses in Temer’s party may try to exclude subsidiaries Chesf, Furnas and Eletronorte from the plan, said Eurasia Group analyst João Augusto de Castro Neves.

Although the tricky politics of Eletrobras date back to its founding in 1961, the impact of government activism worsened dramatically five years ago, when Temer’s predecessor, Dilma Rousseff, forced the company to bear the brunt of drastic rate reductions.

Her move triggered losses from which the utility has yet to recover.

A privatization is more appealing to Chief Executive Officer Wilson Ferreira Jr than prior government proposals to sell key assets, the people said. The plan will allow him to continue with a 13-month-old turnaround of Eletrobras, they added.

Still, Mining and Energy Minister Fernando Coelho Filho and Ferreira diverged on the way such a turnaround should be tackled, the people said. While Coelho wanted Eletrobras to sell generation and transmission assets, Ferreira argued it would kill the company.

In the end, “Ferreira’s view prevailed, because he knew better that the hemorrhaging would only worsen if the company were dismantled,” the person said.

$1 = 3.16 reais Editing by Brad Haynes, Daniel Flynn and Dan Grebler

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