Group is targeting concessions in three states, São Paulo, Minas Gerais, and Rio Grande do Sul

10/28/2022

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Carlos Eduardo Castro — Foto: Silvia Zamboni/Valor

The Águas do Brasil group is getting ready to dispute new sanitation contracts. At least three projects are on the radar: the municipal concessions of Marília (São Paulo) and Nova Serrana (Minas Gerais), in addition to the privatization of Corsan (Companhia Riograndense de Saneamento), according to Carlos Eduardo Castro, who will take over as the company’s head of new business and regulation on November 1.

The executive headed Águas do Brasil until 2019, when he left the group to take command of Copasa (Companhia de Saneamento de Minas Gerais). Now, Mr. Castro ends a four-month quarantine after leaving his position at the state-owned company and returning to the private group. “My return matches a new moment for the group. Today it is a company of a different size, which went through a corporate reorganization and has the appetite to grow in a structured way,” he says.

In August, the company officially took over the new contract in Rio de Janeiro, which was won in an auction at the end of 2021. In this operation, in which Águas do Brasil is a partner of the management company Vinci Partners, investments of R$4.7 billion are foreseen for the universalization of services in the west zone of the state capital and 18 other cities in the state of Rio de Janeiro.

Even with the new operation, the group is already prepared to bid for auctions, according to Mr. Castro. Today, at least three projects are on the radar: the municipal concessions of Marília (São Paulo) and Nova Serrana (Minas Gerais), as well as the privatization of Corsan (Companhia Riograndense de Saneamento).

Even with the new obligations assumed, the group can absorb new business, according to Mr. Castro. “In Rio de Janeiro we have set up a capital structure in which the concessionaire will have its own capacity to generate resources and financing, without creating additional commitments for the holding company,” he says.

The group’s forecast is to reach the end of 2022 with revenues of R$1.6 billion, Ebitda of R$560 million, and financial leverage of 2.1 times net debt by Ebitda.

“The group has leverage under control and very positive ratings from credit agencies. In addition, there is an expectation of revenue expansion starting in 2023. The contract in Rio will increase revenue by 50%, and we have a portfolio of mature concessions that allow us to generate cash for new business,” says the executive.

Mr. Castro also highlights that, depending on the profile of the business, Águas do Brasil will seek strategic partners to make investments feasible.

This would be the model in case the company disputes the Corsan privatization auction, says Mr. Castro. “If the bidding takes place this year, we are studying and discussing with potential partners, depending on the size of the operation,” he says.

The Rio Grande do Sul government plans to carry out the privatization in December this year. Sector analysts evaluate that the deadline is tight and point out that the process will depend on the result of the runoff of the elections in the state, in which former governor Eduardo Leite (Brazilian Social Democracy Party, PSDB) is running for reelection against Onyx Lorenzoni (Liberal Party, PL), who has already made statements against the project.

Today, Águas do Brasil’s operations are concentrated in the Southeast region. The group operates concessions in 32 cities in Rio de Janeiro, São Paulo, and Minas Gerais. The presence in these states increases the group’s interest in new municipal projects in the region — such as the Nova Serrana and Marília contracts, which may still be tendered this year. However, the company is also interested in expanding its operations to other regions of the country, says Mr. Castro.

When it comes to choosing the auctions, it will compete for, one of the main criteria for the company is commercial management control. For the group, the interest increases when the contracts offer the possibility of management with the customers because it is an area in which the company can extract many efficiency gains, says the executive.

Not all concessions give the private company this control. For example, in the case of the sanitary sewage PPPs in Ceará, whose auctions were held this year, only part of the operation was handed over, and the commercial management remained in the hands of the state-run company. Águas do Brasil did not participate in this auction. “It doesn’t mean that we won’t enter projects with this profile, but it has less attractiveness,” he says.

The expectation is that the pace of privatizations in basic sanitation will remain high starting in 2023, according to Mr. Castro. “Whatever the winner [of the presidential elections], sanitation will remain on the agenda. It is unthinkable to imagine any setback or measure that does not attract capital. We believe that the issue will be treated less ideologically and more pragmatically”, he affirms.

In his evaluation, what may change depending on the winners will be the profile of the privatizations that will be proposed.

He gives as an example the states of Rio Grande do Sul and São Paulo, where the candidates running in the runoff of the elections have different points of view about the privatization of the state’s water and sewage companies. For Mr. Castro, even those who do not defend the sale of the companies should study other forms of privatization, such as concessions or PPPs. “Regardless of the ideology of the governor, there is an understanding that some movement will have to be made. For the market, this is what matters,” he says.

“In Rio Grande do Sul, we have two very clear situations, with Mr. Leite and Mr. Lorenzoni, who said he would not privatize Corsan. This decision will not prevent the government from looking for another format. Some other model will have to be taken. In São Paulo, [Fernando] Haddad (Workers’ Party, PT) may also seek other paths”, he says.

Concerning Minas Gerais, the executive highlights that it is necessary to overcome some legislative steps to privatize Copasa — it would be necessary to change the State Constitution, which today requires a referendum in case of privatization. “The reelection and the construction of a base will be able to push this and other projects forward. We will have some movement to expand private participation in Minas Gerais, whether it will be a sale or another arrangement, time will tell.”

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/