Arquivos Sabesp privatization

Tanure’s bid for 15% of the company takes market by surprise

06/19/2024

Sabesp’s privatization offering is scheduled for August, following the “roadshow” period, which involves formal discussions with investors — Foto: Victor Moriyama/Bloomberg

Businessman Nelson Tanure has shown interest in joining the race for Sabesp’s privatization, according to information obtained by Valor. Should he decide to proceed, Mr. Tanure would vie for the role of the primary shareholder in the sanitation company alongside Aegea and Equatorial, the two other entities currently interested in the asset. The deadline to express interest in this process concluded on Monday (17).

Sources close to the matter indicate that Mr. Tanure is exploring synergies with the Metropolitan Water and Energy Company (EMAE), which he acquired earlier this year in the first privatization auction under the Tarcísio de Freitas administration. However, the sources noted that the “unusual conditions of the auction” and “strong political opposition” have posed challenges. Mr. Tanure has declined to comment on the matter.

Given the substantial financing required and the hefty sum the winner must disburse, there is behind-the-scenes speculation about the possibility of forming a consortium with BNDESPar, the Brazilian Development Bank’s (BNDES) equity arm. However, the bank has stated that it “has not entered into and is not in the process of negotiating any agreement, covenant, or partnership with third parties for participation in the public offering of Sabesp.”

In the market, expectations suggest that Mr. Tanure’s potential bid might not generate significant interest during the “bookbuilding” process, where investors’ intentions are gauged.

This situation could diminish his chances of success, as one of the criteria for selecting the primary shareholder is the demand generated during the bookbuilding. Conversely, it also raises questions: if Mr. Tanure submits the highest bid but fails to secure the deal due to low volume in the book building, this could lead to further scrutiny, according to sources.

On Tuesday (18), news of the businessman’s interest in Sabesp emerged, catching the market off guard and resulting in a 2.97% decline in Sabesp shares, which closed at R$72.11. Similarly, when Mr. Tanure’s group secured the EMAE auction, the company’s preferred shares plummeted by 28.42%.

Beyond EMAE, Mr. Tanure holds significant stakes in the power distribution company Light and oil companies Prio and Azevedo & Travassos, among others.

The São Paulo government has crafted a privatization proposal with an innovative model that incorporates a mechanism designed to deter “adventurers” from seeking to become a primary shareholder.

The offering is structured in two phases: Initially, the two potential primary shareholders proposing the highest prices for a 15% stake in the company will be selected. Subsequently, for each candidate, two bookbuildings will be organized to accommodate other investors interested in becoming minority shareholders in Sabesp.

The primary shareholder who assembles the most advantageous bookbuilding will prevail based on criteria that meld the highest weighted price with the largest volume of demand. This means that a partner may fail to secure the position, even if they offer the highest price.

When the privatization rules were unveiled, market participants highlighted the potential for regulatory scrutiny and litigation, particularly concerning the non-priority of price as the sole decisive factor. Nonetheless, the government has stood by this approach, asserting that it enhances value for the state.

Upon inquiry, the São Paulo government mentioned that the “public offering is in a quiet period,” during which “all communications will be conducted through the prospectus and notices of material fact.”

Following the expression of interest, the contenders for the primary shareholder position are required to formalize their bids. Besides Mr. Tanure, Aegea is attempting to establish a consortium with its shareholders (Equipav, GIC, and Itaúsa) and partners from other ventures (Perfin and Kinea). Equatorial is also a contender, forming a consortium with partners including Squadra funds, Opportunity, and Canada Pension Plan.

Aegea and Sabesp declined to comment. Equatorial did not respond to inquiries.

Some potential bidders are still in discussions with the São Paulo government, seeking adjustments to the terms of the privatization. A major point of contention is the “poison pill” clause, designed to protect minority shareholders against hostile takeover attempts. This provision has been unpopular among some groups, who are advocating for its removal, sources told Valor.

Under the proposed terms, the primary shareholder would hold a 15% stake in Sabesp and one-third of the board of directors seats. A cap has been set on shareholder voting rights at 30%, which is also the threshold for initiating a public offering of shares.

“Even though the primary shareholder is acquiring only 15% of the company, it is treated as if they had reached the 30% threshold right from the start due to the shareholder agreement. With large funds behind the primary shareholder, it’s impossible to monitor everything happening within these funds constantly. These are offshore funds managed by dozens of managers simultaneously,” explained a source.

This rule impacts financial groups that might join the consortium of the primary shareholder while also managing various other stock funds that do not hold a stake in Sabesp’s controlling group. The “poison pill” clause is seen as a potential hurdle for these funds to invest in Sabesp. Any decision by a fund manager, anywhere in the world, to purchase even a single Sabesp share could activate the control mechanism due to the governance structure of the funds not covering such granularity.

Sabesp’s privatization offering is scheduled for August, following the “roadshow” period, which involves formal discussions with investors. This timing is intended to avoid interference from the election season on the operation.

*Por Fernanda Guimarães, Taís Hirata, Fábio Couto, Robson Rodrigues — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

Peculiarities of the sanitation sector, however, will require a negotiation with the municipalities

01/09/2023

Natália Resende — Foto: Silvia Costanti / Valor.

The São Paulo state government will study the privatization of water and waste management state-run company Sabesp in the same way as was done for Eletrobras — considering the peculiarities of the sanitation sector, though — which will require a negotiation with the municipalities served by the company. According to Natália Resende, who took over the recently created “super-secretariat” of Environment, Infrastructure and Logistics of the State, the initial step will be taken in the first 100 days of the administration, carrying out the contracts for the studies. In the process, other privatization models may also be evaluated, she says.

“We are going to detail each of the scenarios. Of course we already have a feeling, a smell, so when we talk about the Eletrobras privatization model it’s because we really see there [an interesting format]. But we will certainly study the proposals that emerge”, he says.

In an interview with Valor, Ms. Resende also talked about other plans ahead of the secretariat, which brought together the Transport and Logistics and Infrastructure and Environment Secretariats.

Among the projects under analysis is the privatization of the Metropolitan Company of Water and Energy (Emae), which is expected to have a call for a bid this year; the plan for reducing the effects of pollution of rivers, which may be connected to the privatization of Sabesp and Emae; the concession for coastal ferries, in a PPP format; and the possible resumption of a state project to get the Santos-Guarujá dry link off the drawing board, in case the federal government does not move ahead with the tunnel, included in the privatization of the Port of Santos.

Federal Attorney General’s Office (AGU), Ms. Resende served as a legal advisor to the Ministry of Infrastructure under the current governor of São Paulo, Tarcísio de Freitas (Republicans) — and, according to her, helped in the structuring of “a hundred infrastructure auctions”.

Read below the main excerpts of the interview:

“We are going to study the privatization of Sabesp, which includes privatization. If this is the best option, we will move towards it,” says the secretary. According to her, the goal is to anticipate the universalization of the water and sewage services in the State and improve the services provided to the final user.

In the 375 cities served by Sabesp, water supply is universal (98%), but water losses still represent 16% of the total produced. The sewage collection coverage is 92%, and the treatment, is 78%, according to data from 2021.

Ms. Resende says the idea is to study a combination of the Eletrobras privatization model (done by selling the state-owned company’s shares on the Stock Exchange) with the peculiarities of the basic sanitation sector. In the process of selling the power company’s control, there was a dilution of the federal government’s shareholding, through a capital increase.

In the case of the water and sewage sector, the main difference is that the competence of the service lies with the municipality. This means that it will be necessary to renegotiate contracts with the municipalities if Sabesp wants to make changes — for example, to extend terms or add investments. “We need to talk to the municipalities. This we will do. There are several contracts with different deadlines, and we want to bring forward universalization. To do this, we need more investment,” he says.

When asked about the possibility of the State keeping a “golden share” (a special share with veto power), she says that the topic will also be studied.

Also asked about other forms of privatization, such as direct sale, block concession, or capitalization, she said that different models would be analyzed, but highlighted that it is necessary to have focus. “Several proposals will arise in the process. What you cannot do is lose focus.”

There is still no timeline for the privatization process. This will be defined in the studies, which will be contracted in the first 100 days of the administration.

Regarding the discussion in the federal government about changes in the sanitation law, Ms. Resende says that the idea was poorly received. “When I looked [at the Provisional Measure that proposed changes to the National Water Agency], it caused me a lot of concern. Then they said that it was a mistake. It’s okay, mistakes happen, but the sanitation agenda is a high priority, it has to be given a lot of attention.”

The secretary says that it will still be necessary to wait for the federal proposals to ponder the possible impacts on the State’s plans. “On our side, we will do our best to protect and do what we think is right.”

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Peculiarities of the sanitation sector, however, will require a negotiation with the municipalities