Eletrobras’s capital increase encourages capital market

08/06/2022

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Companies are slowly beginning to evaluate the possibility of resorting to the capital markets to finance their expansion. In the last two weeks, sanitation companies Corsan (Rio Grande do Sul) and BRK Ambiental (São Paulo) announced that they intend to go public after some months marked by a few IPOs.

Stimulated by the secondary offering of power giant Eletrobras, oil companies listed on the Brazilian stock exchange have also started to sound out investment banks to take the same path. PetroRecôncavo informed the market that it intends to raise up to R$2 billion. Sources told Valor that 3R Petroleum and PetroRio are considering doing the same, as well as power generation company Eneva.

If expectations are confirmed, sanitation companies BRK Ambiental and Corsan could launch the first IPOs of the year. China Tree Gorges (CTG) and oil company SeaCrest are also starting to sound out investors and may make initial stock offerings after the elections, sources say.

So far, there have been nine secondary offerings this year, raising R$13 billion. With the scenario of high interest rates and inflation both abroad and in the domestic market — compounded by uncertainties brought by the presidential elections in October — companies had given up on the capital markets. With Eletrobras’s capital increase, which could raise about R$30 billion, companies have begun to check and see if there is room for a restart. Eletrobras’s offering is expected to be priced Thursday.

But the atmosphere is not for euphoria. Gustavo Miranda, head of investment bank at Santander, sees the scenario as more favorable for secondary offerings than for IPOs. “Brazil, compared to other emerging countries, is even more attractive because of commodities.” He observes, however, that this factor is not enough for initial stock offerings to resume the pace of the last two years. Turbulence in the economy and strong market volatility continue to drive companies away from the market.

This is happening abroad as well. In the United States, the volume of stock offerings plummeted, Mr. Miranda said. From January to May, 157 companies debuted, raising $17.9 billion. In the same period last year, 628 companies went public, raising $192 billion, according to Dealogic.

According to him, the next windows for offerings are narrow. There is room for pricing until July. Then, with the summer holidays in the Northern Hemisphere, the opportunities for those seeking to go public after the elections will be between the end of November and December.

Last year, there were 76 IPOs and secondary offerings, which raised almost R$130 billion, compared to 51 in 2020, with R$117 billion raised. For 2022, preliminary estimates by investment banks show that the amount could reach a third of that negotiated in the past if Eletrobras manages to conclude its secondary offering.

In the financial market, there is still a lot of skepticism about the IPO plans of BRK and Corsan. According to a source, the two sanitation companies do not have a price reference for shares of competitors in the domestic market. Corsan’s offering would be the first privatization of a state-owned company in the sector. BRK would be the first private-sector company in the segment to go public — Iguá Saneamento has already tried, but did not reach an agreement on the price of the shares.

The situation is different for CTG and oil company SeaCrest, which have rivals in the exchange. Even so, if the political and economic turbulence persists, the offerings may be postponed until 2023.

A source familiar with Corsan says that the biggest difficulty will not be the market, but the setting up of the operation. One major obstacle is public spending watchdog TCE, a state agency, whose questionings were determinant for the postponement of the offering, in January. Since then, the company has been making adjustments to meet the agency’s demands. For example, in May, it disclosed new rules of governance applicable after the offering.

There is still no approval by the TCE, but an agreement is expected for the end of next week. Unlike the Federal Court of Accounts (TCU), which can bar privatizations, the state court would not have this power, but an unfavorable position would bring great risk to the offering.

Besides the TCE, there are dozens of requests for canceling the process, but, according to the source, about 80% of the requests have already failed, which shows that the process has been robust, he said.

In January, before opting for postponing, Corsan almost closed an anchor agreement with Aegea and Perfin for its IPO. Today, the perception is that “there should be no formal anchoring” for the offering, according to the source.

BRK’s offering, announced last week, was not so well seen at Corsan: on the one hand, it strengthens the idea that the basic sanitation industry stands out; on the other, the IPOs are seen as competing for the same investors.

According to a person familiar with the matter, BRK has already started sounding out investors to test the pricing of its shares. There is a consensus that state-owned bank Caixa, one of the company’s shareholders, wants to reduce its position. Brookfield, another shareholder, is not in such a hurry, sources say. The prospectus draft sent to the Securities and Exchange Commission of Brazil (CVM) foresees a primary offering, aiming to raise funds for auctions.

Bernardo Parnes — Foto: Ana Paula Paiva/Valor

For Bernardo Parnes, founding partner of the financial advisory firm Investment One Partners, the privatization of Eletrobras is positive for the capital market. “Just look at the examples of Vale and the Telebras system. In the case of Eletrobras, the offering will help unlock value in the company.”

Mr. Parnes does not see, however, a capital market recovery in the short term. “About 80% of the companies that carried out an IPO between 2020 and 2021 have undervalued shares now.”

According to him, several factors contribute to this diagnosis, such as high interest rates in Brazil and abroad, the Russia-Ukraine war, which affects logistics, and rising oil prices. Mr. Parnes sees a recovery of the global economy between the end of 2023 and the first half of 2024.

PetroRio said that the secondary offering is one possibility for funding, should it decide to go ahead with the operation. Eneva said it is considering some alternatives to finance recent acquisitions of the company, “always striving for the best allocation of funds and strong capital discipline. One possibility analyzed is a secondary offering, which is still under study.”

CTG and 3R Petroleum said they would not comment on market rumors. Caixa declined to comment, citing a quiet period. BRK, Brookfield, Corsan, Aegea and Perfin declined to comment. SeaCrest did not immediately reply to a request for comment.

*By Mônica Scaramuzzo, Taís Hirata — São Paulo

Fonte: Valor International

https://valorinternational.globo.com/