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Eletrobras raises R$33.7bn in mega stock offering

After privatization by capital increase, government will hold about 40% of votes

06/10/2022

Investors say changes will help company gain efficiency — Foto: Domingos Peixoto/Agência O Globo

Investors say changes will help company gain efficiency — Foto: Domingos Peixoto/Agência O Globo

Eletrobras managed to price at R$42 each share in the mega stock offering that will privatize the company. Eletrobras sold 802.1 million shares, raising R$33.7 billion.

According to a Valor Data survey, in dollar terms, the amount represents a little more than twice the volume of Vale’s privatization, and 78% more than Banespa’s privatization. It was the second-largest privatization ever in the country, second only to that of telecoms company Telebras.

With the sale of part of shares held by the Brazilian Development Bank (BNDES) and especially the dilution of the federal government’s stake with the issuance of new shares, the government is no longer the controlling shareholder of Eletrobras — although it holds a golden share. The federal government and the BNDES go to 40.3% from 68.6% of the common shares (there is still a small participation of other government funds, not detailed in the prospectus), going to 36.9% of the total capital.

By early evening, the tug-of-war between banks and investors was concentrated on a R$0.5 difference, with the official range between R$42 and R$42.5. Relevant international investors, such as GIC and CPPIB, had tried to reduce the price (in the morning, the groups were pushing for shares between R$38.5 and R$39.5). With the high interest in the operation, around R$60 billion, the banks managed to raise the price. The Brazilian institutional group includes funds such as SPX and Truxt, already existing shareholders 3G Radar and Banco Clássico, and firms such as RWC and GQG.

Workers who invested using funds from the Workers’ Severance Fund (FGTS) will keep R$6 billion in shares, which was the maximum value for this type of reserve. According to Valor Investe, around 370,000 workers used the FGTS to make reserves for the shares — a demand higher than the 248,000 workers who joined, with the same fund, Petrobras’s offering in 2000, but lower than Vale’s offering, in 2002.

In the privatization process, the company wants to migrate to Novo Mercado — the strictest governance segment of B3. To keep the status of a corporation, the golden share gives the federal government veto power on changes in the bylaws, such as trying to change to 10% the limit of voting power for each shareholder or group. The company also defends the new composition, which prevents the controlling shareholder from creating a poison pill.

Privatization via capital increase also implies the payment of fixed concessions, concerning the renewal of concessions and the adoption of the operation regime — changing from the quota model to the independent production model, in which the plants can sell power at market price.

Although it is different from the classic privatization by auction, with the sale of government participation, the process has the same outcome. “Internally, the structure changes a lot. There is no longer need for a public hiring test, it is no longer under the control of the public spending watchdog TCU, it no longer fits into the law of state-owned companies, it is no longer a semi-public company,” said Vitor Rhein Schirato, founding partner of Daemon Investimentos.

These changes alone can already help the company gain efficiency, in the view of investors. “Historically, privatizations have been accompanied by higher productivity and competitiveness. The companies became more efficient and this in itself should boost competition in the sector, benefiting the consumer,” said Sergio Zanini, a partner at Galapagos.

With different projects and supporters in recent years, the privatization of Eletrobras was fraught with disbelief even after the public offering was filed (you never know when an injunction might come along). At the beginning of last year, Wilson Ferreira Jr. left the command of the company – to which he had agreed to return precisely to conduct the privatization – annoyed with actions in different wings of government to block the process.

Mr. Ferreira Jr., who currently heads Vibra, estimates that Eletrobras will be able to more than triple its investments, becoming a more efficient and competitive company. The management of a state-owned company “is a living hell,” the executive told newspaper O Estado de S. Paulo last week, describing complex and rigid decision-making. The company, on the other hand, will now assume risks that used to be shouldered by the controlling shareholder, such as hydrological risks.

Some people link Eletrobras’s privatization to the beginning of the electoral race – but the fact is that it materialized. “It was one of the government’s promises since the election and, for good or for bad, being able to deliver this offering, at this size, with this demand, is relevant for the government,” Mr. Zanini said.

In the base offer, Eletrobras issued 627.7 million new shares, and BNDES sold 69.8 million shares. An additional allotment added more 104.6 million to the offering.

*Maria Luíza Filgueiras, Manuela Tecchio — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Eletrobras sees strong demand from investors

Demand could reach R$53.5bn; stock price of Brazil’s main power utility will be defined Thursday in privatization process

By Maria Luíza Filgueiras, Talita Moreira — São Paulo

06/09/2022

Eletrobras’s power transmission towers — Foto: Custódio Coimbra/Agência O Globo

Eletrobras’s power transmission towers — Foto: Custódio Coimbra/Agência O Globo

Brazil’s main power utility Eletrobras prices Thursday its great stock offering and, on the way to privatization, reaches the final stretch of the bookbuilding with plenty of volume to launch the operation. According to sources close to the operation, the company had already secured about R$53.5 billion by early Wednesday afternoon.

The demand via the Workers’ Severance Fund (FGTS) is around R$7.5 billion, but allocations will be limited to R$6 billion – which already signals sharing among investors. Workers could invest up to 50% of their resources in the fund, and applications closed on Wednesday at noon.

As it has already been launched with strong anchoring, the institutional investors that are not in these groups or that exceed the ceiling reserved for each profile will dispute what remains of the bookbuilding. There are about R$26 billion in reserves for a number of shares of around R$6.5 billion – that is, the demand is four times higher than the offer.

When the secondary offering was launched, Eletrobras shares were at R$44. On Wednesday, ELET3 closed at R$42.14 and ELET6 at R$41.63, which adjusts market expectations for a funding of around R$34 billion, with the allocation of the supplementary lot.

The banks BTG Pactual, Bank of America, Goldman Sachs, Itaú BBA, XP Investimentos, Bradesco BBI, Caixa Econômica Federal, Citi, Credit Suisse, J.P. Morgan, Morgan Stanley and Safra are coordinating the operation.

Source: Valor International

https://valorinternational.globo.com/
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Public spending watchdog member sees flaws in Eletrobras’s results

Vital do Rêgo — Foto: Divulgação/TCU
Vital do Rêgo — Foto: Divulgação/TCU

Vital do Rêgo, a member of the Federal Court of Accounts (TCU) that requested more time to study the Eletrobras privatization trial, will tell the court this Wednesday to halt the analysis of the case until alleged irregularities in the company’s financial statements are corrected.

One issue is related to a R$2.7 billion debt that Eletronuclear has with Eletrobras. The liability, created by the withholding of dividends, is allegedly not recorded in Eletrobras’s results. The company replied that it will not comment on the case.

Another issue identified by the TCU member is in contingencies reported by Eletrobras for possible unfavorable decisions in courts. According to Mr. Rêgo, who requested an audit of the contingencies, the way the operation was designed could represent losses to the country.

Only in the third quarter of last year, the company increased by R$9 billion the amount of the provisions, which reached R$26 billion. If Eletrobras wins the lawsuits in court, the funds will return to the balance sheet as profit and then be partially distributed as dividends.

In this case, Mr. Rêgo said, the government could lose, since its stake in Eletrobras – and, consequently, in dividends – will be smaller after privatization. The government expects its slice to fall to 45% from 72%.

If Eletrobras is defeated in the courts, the state could also lose. This is because the company went to court to ask that the state be considered “jointly” liable. The liability arose from compulsory loans made over the years through electricity bills.

If the Superior Court of Justice (STJ) rules that the state is jointly liable, half of the R$26 billion in provisions would be transferred as a liability to the Treasury.

Despite Mr. Rêgo’s points, the plenary is expected to approve the opinion of rapporteur Aroldo Cedraz and release the privatization. In this case, the government expects to move forward with a capital increase in July that will transfer the control of the state-owned company to the private sector.

On Tuesday, unions representing Eletrobras servers filed a complaint against the company with the U.S. Securities and Exchange Commission (SEC). They say that the company is allegedly hiding from the shareholders the dimension of the financial risks of the hydroelectric plant of Santo Antonio, in Rondônia.

The unions argue that Eletrobras has been delaying the disclosure of sensitive financial details about the plant in an attempt to speed up privatization – even as this imposes losses for the company and its shareholders in the future.

Analyzed in two stages, the privatization case was passed in both cases by TCU’s technical team and has the support of most of the court’s members. This week, the new minister of Mines and Energy, Adolfo Sachsida, met with several TCU members to ensure support for the project.

If privatization is approved, a general meeting of the company’s shareholders is still planned, followed by the publication of the 20-F form, which contains information about the operation for SEC and foreign investors.

The timetable also foresees the publication of the prospectus of the stock offering, the book building and, finally, the liquidation of the operation.

Despite the warnings made by Mr. Rêgo, however, government sources heard by Valor believe that the privatization will pass this Wednesday in TCU. The subject was discussed Tuesday at a meeting held at the Ministry of Economy, attended by the minister himself, Paulo Guedes, Mr. Sachsida, the Federal Attorney General Bruno Bianco, Eletrobras CEO Rodrigo Limp and specialists from the ministries and the company. “We believe that it will be approved by the TCU, with Vital voting against it,” a government source said.

Another source from the Economy explains that “the doubts that the TCU specialists had have all been answered,” but acknowledged that the trial is also “political.”

(Lu Aiko Otta and Estevão Taiar contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Public spending watchdog hampers maneuver on Eletrobras

Aroldo Cedraz — Foto: Jorge William/Agência O Globo
Aroldo Cedraz — Foto: Jorge William/Agência O Globo

The Federal Court of Accounts (TCU) confirmed Tuesday the May 18 date for the resumption of the Eletrobras privatization trial. Contaminated by political polarization, the operation gained a curious chapter last week, when TCU member Aroldo Cedraz surprised his colleagues by suggesting that an eventual attempt to retake control of the company by the government would be eased.

Rapporteur of the matter in the public spending watchdog, Mr. Cedraz delivered his opinion to his colleagues less than two hours before the beginning of the session. Among the proposals was a change in the mechanism that aims to protect minority shareholders against the takeover by means of a hostile bid, known as the “poison pill.”

A week earlier, Twitter’s board had triggered the poison pill against the onslaught of businessman Elon Musk. Not even this strategy, however, was enough to stop the billionaire, who now owns the social media.

In Brazil, the tool has also been dubbed the “anti-Lula clause.” Leader in the polls for this year’s election, the former president has already spoken out against the privatization of Eletrobras, and his allies said he would reverse the operation if elected.

To make such a maneuver more difficult, the Brazilian Development Bank (BNDES) has included a poison bill in the privatization model. Anyone interested in taking control of Eletrobras — whether the federal government or a private-sector organization — would have to pay a high amount to the other shareholders and then convince them to change the company’s bylaws.

Under the rules in force in the model delivered to the TCU, the person interested in taking control must make a public offer to buy the stakes of the other shareholders at a price three times the highest stock price recorded for the asset. Even so, even with a share of more than 50% of the voting capital, the voting power would be restricted to 10%.

To break this second barrier, a shareholders’ meeting would have to be called to approve the change in the bylaws. Mr. Cedraz considered those conditions “unfair” for an eventual strategic need for the retaking of the company by the federal government. He then proposed a kind of antidote to the poison.

“In order to protect the prerogative of the federal government to, at any time, reverse the privatization process of Eletrobras, by paying fair — but not exorbitant — amounts to the other shareholders, this TCU member proposes the revision of the poison pill clause suggested by BNDES,” he said.

His central argument is based on the strategic importance of freshwater reservoirs, which has led some governments to meddle to prevent market abuses by private-sector hydroelectric generation companies.

“This kind of intervention has proven necessary, mainly because of the ongoing global power crisis and transition. While France resumes studies to nationalize a large company in the electricity sector, Spain and Portugal present to the European Union a plan for state intervention in the sector through measures aimed at lowering power prices in the Iberian Peninsula,” the rapporteur argued.

The proposal surprised the market, and even more the other TCU members. President Jair Bolsonaro’s main ally in the court, Jorge Oliveira, was warned by technicians in his office about the antidote and called member Benjamin Zymler, considered a technical reference in the electricity sector.

The two acted quickly and, a few minutes before the beginning of the trial, convinced Mr. Cedraz to back off. The rapporteur announced the withdrawal of the idea in the middle of the reading of his vote, which caused another surprise in the room, the second in a few hours. “Shame on you,” said one member during the session.

With Mr. Cedraz’s change, the “anti-Lula clause” was preserved. According to Valor, the rapporteur was convinced that it would not be necessary to privatize in order to avoid abuses by a private partner. In such a situation, the federal government could simply cancel the Eletrobras concessions and take over the contracts through a new state-owned company.

Source: Valor International

https://valorinternational.globo.com

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Final vote on privatization of Eletrobras said to be postponed

Vital do Rêgo — Foto: Divulgação
Vital do Rêgo — Foto: Divulgação

On the eve of the session that will analyze the privatization of power giant Eletrobras, members of the public spending watchdog TCU are trying to reach an agreement on the final date for the trial.

Although it is on the agenda for this Wednesday’s session, a request for examination by TCU member Vital do Rêgo will postpone the final decision. The question mark is how much time Mr. do Rêgo will have to return the case to the floor.

Mr. do Rêgo is likely to say that the minimum price set for Eletrobras shares in the capital increase process is lower than it should be, according to sources. In his view, there are values not included in the calculation.

The standing rules of the TCU provide for a 20-day period for the requests for examination, with the possibility of two extensions for the same amount of time. Usually, the court authorizes the entire 60-day period, but this time it will be different.

Appointed by President Jair Bolsonaro, with whom he has a friendship, TCU member Jorge Oliveira is leading a movement to restrict the examination vote period to only seven days. He used the same resort in the process that authorized the auction of 5G technology.

Then, as well as now, the argument will be the urgency to carry out the operation. The Ministry of Economy and the Brazilian Development Bank (BNDES) have spent the last weeks telling the TCU ministers of the importance of approving the matter by April 27 at the latest.

The argument is that after this date, it will no longer be possible to carry out the operation on May 13, the deadline for the use of Eletrobras earnings reports for the fourth quarter of 2021. From then on, the statement of the first quarter of this year should be used.

In this case, the capital increase would have to be postponed to July or August, when the operation would run much more risk of not being successful due to the elections and the schedules of the investment funds interested in the business.

Mr. do Rêgo, however, considers that seven days is not enough for any serious analysis and is not willing to accept it. An alternative proposal, headed by TCU member Bruno Dantas, would be to grant the minimum period of 20 days, provided for in the regulations.

Others, such as Walton Alencar, TCU’s longest-serving member, suggest alternative deadlines. If there is no prior agreement, the decision must go to a vote. In the 5G trial, in August last year, Mr. Oliveira managed to convince the majority about the seven days deadline.

At the time, the author of the request for examination was TCU member Aroldo Cedraz, current rapporteur of the Eletrobras case. Forced to return the case within a week, he said he was disrespected, and that the decision was unprecedent in the court.

Read more: Eletrobras: it’s all or nothing on capital increase

Source: Valor International

https://valorinternational.globo.com

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Shareholders approve privatization of Eletrobras

Acionistas aprovam privatização da Eletrobras em assembleia - 22/02/2022 - Mercado - Folha

Eletrobras’s shareholders approved Tuesday, in an online extraordinary general meeting, the terms of the privatization of Brazil’s main power utility, sources say. With the approval, the company overcomes one more step in the obstacle course to make possible its capitalization process within the expected term, in the second quarter.

Valor found out that there were questions from minority shareholders, in the figure of the former board member of the state-owned company, João Antônio Lian, and from the Association of Employees of Eletrobras (AEEL), through a legal representative.

The digital voting was interrupted a few times, so that the company’s management could prepare explanations for each questioning. In the end, the items were all voted on with a wide margin of acceptance by the minority shareholders. The federal government abstained.

After more than five hours of voting, the shareholders greenlighted the privatization of Eletrobras. The item, the last one on the meeting’s long agenda, was approved by holders of 202 million of the company’s common shares, while shareholders representing 9,749 shares were opposed. The abstentions in this discussion totaled 884 million votes.

The capitalization of Eletrobras will take place via capital increase. The company will issue new shares through a primary offering and the federal government will waive its subscription rights. The objective is that the government’s stake (direct and indirect) in the state-owned company be diluted from the current 72.33% of the voting capital to 45% or less. If the primary offering is not enough to reach the desired limit, a secondary offering of the common shares held by the government will be made.

The last major pending issue to be overcome before launching the offering of Eletrobras shares will be the final approval from public spending watchdog TCU, whose members greenlighted, last week, the technical studies for the company’s privatization, but will still be working on the last details of the operation, such as the price of the shares. The expectation in the government is that this process will be concluded by the beginning of April.

From then on, it will be up to the board of the state-run company to define the best moment for the operation. One item on the agenda approved at Tuesday’s meeting was precisely the authorization for the board to establish details of the capitalization as the schedule, structure and prices of the issuance of new shares for the company’s capital increase.

Before the meeting, the Furnas Employees Association (Asef) tried to obtain an injunction in court to suspend the meeting. The request was presented at 7:40 am and before the start of the meeting, around 2 pm, the Court decision that denied the request circulated behind the scenes.

At least four other fronts, headed by, among other actors, Workers’ Party (PT) deputies and the Association of Eletrobras Employees (Aeel), tried to suspend the meeting, through challenges in Court and the Securities and Exchange Commission of Brazil (CVM), but none went ahead.

In all, the shareholders decided, on 12 items contained in the agenda. All of them had to be approved, without exception, for the others to be effective.

The meeting began with the approval of the transfer of control of Eletronuclear and Eletrobras’s stake in Itaipu to Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar).

This new state-owned company was created to keep the federal government’s control over these two assets, which will no longer be controlled by Eletrobras after it is privatized. Under the Constitution, the federal government has monopoly on the operation of nuclear plants in the country. The Itaipu Treaty, signed between Brazil and Paraguay for the construction of the binational plant, also provides for state participation in the hydroelectric plant.

Source: Valor International

https://valorinternational.globo.com

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Regulator OKs price for sale of Eletrobras despite miscalculation

Vital do Rêgo — Foto: Divulgação
Vital do Rêgo — Foto: Divulgação

The Federal Court of Accounts (TCU), a public spending watchdog, approved Tuesday the first phase of the technical studies for the privatization of Eletrobras. The trial ended with six votes in favor of approval and only one against. The approved values will now be used to help define the share price that will be considered for the company’s capitalization, a phase that will still go through the TCU’s scrutiny.

TCU member Vital do Rêgo revealed on Tuesday an underestimation of R$34 billion in the value of the concession payment that should be paid to the National Treasury in Eletrobras’ privatization. Valor had already reported that there was a methodological error in the calculation of the value added to the state-owned company’s contracts.

With the adjustments requested by Mr. do Rêgo, the amount would rise to R$57.2 billion from the current R$23.2 billion. On the other hand, transfers to the Energy Development Account, which will be used to cushion the impact on electricity bills, would increase to R$63.7 billion from R$29.8 billion.

The bulk of the difference is due to the fact that the government did not consider in the model presented the pricing of the power of the 22 hydroelectric plants of Eletrobras. Another smaller adjustment was motivated by flaws in the definition of the hydrological risk criteria for the coming years.

“In an inexplicable and illegal way, the pricing of power was not presented. An absurd, huge mistake,” the TCU member said. “I understand that this is a non-negotiable situation.”

Despite Mr. do Rêgo arguments, the other TCU members chose to approve the model and proceed with the process. “I think we still don’t have the level of development enough for the proper appropriation of the power market,” said Benjamin Zymler, who is seen as an expert in the field.

His assessment is the same as that of the government, which justified the absence of values referring to power by the lack of a market for this asset. In this sense, claims the Ministry of Mines and Energy, it would be impossible to price the power.

Still, Mr. Zymler said he shared Mr. do Rêgo’s perception and did not see the company’s privatization ripe for development. “It is not yet at an adequate level of maturity. If Eletrobras were mine, I would not privatize it with these accounts,” he said.

Mr. Zymler also considered the possibility of determining the government to commit to include a clause in the contract providing for possible compensation if a power market becomes viable in the future.

The proposal, however, ended up reversed in recommendation, under protests from Mr. do Rêgo. “We are selling Eletrobras for half the price and the private sector is celebrating,” he said.

The other TCU members considered that the conclusion of the privatization would be more beneficial than postponing the process or keeping Eletrobras under state control.

“Any perception by the market of an overestimation of the value added to contracts would scare investors away, reduce share prices and make fewer resources available for investment. What people ask for and desire is investment for the sector,” TCU member Walton Alencar said.

The uncertainties surrounding the trial led the first level of the government to reach TCU ministers individually to avoid a setback.

Ministers Paulo Guedes (Economy), Ciro Nogueira (Chief of Staff Office) and Bento Albuquerque (MME) asked TCU members not to determine any change in the economic and financial model, sources say.

The government sought the members of the public spending regulator with the aim of letting them know how important the process is. If it moves forward, this would be the first privatization during the Bolsonaro administration.

Yet, if the sale takes a long way in the TCU, which can still happen, it will hardly end this year, which will be virtually all taken by the elections.

Source: Valor International

https://valorinternational.globo.com

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