Eletrobras CEO Sees Clear Path to Privatization in Brazil

Feb. 2, 2018
Privatizing Eletrobras is the centerpiece of President Michel Temer’s plan to sell 57 state-owned assets to help solve a budget crisis

(Bloomberg) The chief executive officer of Brazil’s state-owned utility Eletrobras remains confident that a controversial plan to take the company private will succeed this year despite opposition from lawmakers and an upcoming presidential election.

Congress is well positioned to approve a bill by July to privatize Latin America’s largest power company, months in advance of October’s presidential election, Eletrobras’ Wilson Ferreira Jr. said in an interview. The company will hire banks in the second quarter to prepare for a public offering enabling Eletrobras to raise $3 billion to $4 billion by the second half of the year.

“We have a big chance to have this privatization this year -- we have enough time,” Ferreira said.

Privatizing Eletrobras is the centerpiece of President Michel Temer’s plan to sell 57 state-owned assets to help solve a budget crisis. Last year, the government said the transactions could pump as much as 40 billion reais ($12.6 billion) into the national budget by the end of 2018, providing a financial boost to reduce the deficit after the deepest recession on record.

The plan faces stiff opposition. Lawmakers in congress argue that selling a controlling stake in Eletrobras could drive up power prices and put private investors in control of hydroelectric dams along rivers that play crucial roles in regional economies. Seven of 10 Brazilians are against privatizing companies, according to pollster Datafolha.

Moody’s analyst Cristiane Spercel said the odds of a deal coming together in 2018 are “difficult.”

“The process involves changing the law, defining new regulation and having all plans approved by Congress,” Spercel said in an interview. “It is bureaucratic and will face polarization.”

Diluting Ownership

Nonetheless, Ferreira says privatization is the best solution for Eletrobras, which as of September had a net debt of 22.7 billion reais. Opposition, he said, was to be expected.

“We are reducing our workforce, and Eletrobras has businesses in all Brazilian regions,” he said. “There are politicians that have influence in the company’s regional operations, which will change along with the privatization process.”

Eletrobras shares are already publicly traded, but the government holds a controlling stake. Temer, who is racing to complete the sale before the October vote, signed a bill this month outlining a plan to issue enough new shares to dilute Brazil’s 67 percent stake to less than 50 percent. Eletrobras is preparing to embark on a campaign to persuade Brazilians to support the move, Ferreira said.

“This is the best way for the company -- the best way for the country. So it should be the best way for citizens,” Ferreira said.

Restructuring Plan

In addition to the privatization plan, Ferreira is pushing to cut Eletrobras debt through a massive restructuring that calls for slashing the workforce and selling six distribution subsidiaries and 77 wind and power transmission assets.

The sale of power distribution companies is planned for April. Eletrobras plans to announce the time line for selling the wind and transmission power assets later this month.

The utility company’s American depositary receipts trading in New York are up 10.6 percent this year to $6.45, the highest since November.

Brazil’s congress remains out of session for the summer. Temer’s energy minister, however, is already in talks with lawmakers to line up support for the privatization plan.

-Vanessa Dezem

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