Eletrobras’ privatization limits the vote of private shareholders; understand

​Eletrobras’ capitalization model gives the government veto power over corporate issues of the new company, to prevent new partners from having great influence over its management. This power is granted by the so-called golden share, a special action that will be with the Union.

The privatization of the state-owned company will be carried out through an offer of common shares, with voting rights, without the government being able to buy new shares. The idea is to reduce the government’s share to less than 45% of the company’s voting capital, eliminating the figure of the majority shareholder.

Currently, the Union holds 51.82% of the voting shares. BNDES (National Bank for Economic and Social Development) has another 16.78%, and government funds, another 3.62%.

Union shares are equivalent to 42.57% of the company’s total capital. Including preferred shares, BNDES has 16.14% of the total capital.

By reducing its participation in common shares to 45%, the Union would have 37% of the total capital.

According to the proposal approved by Congress, the golden share guarantees the Union veto power in votes by shareholders with shares greater than 10% and in the eventual negotiation of a shareholders’ agreement, as occurred in Vale, where Bradesco and pension funds created a group to control the company.

The idea is to keep Eletrobras as a corporation, a term that identifies companies with dispersed control. For this, the law also established the obligation to sell shares by investors who eventually reach a large share of the capital.

Shareholders who reach, directly or indirectly, 50% of the voting capital will have 120 days to return to their previous position. Otherwise, they will be obliged to sell securities at 200% of the average price of the previous 504 days, updated by the Selic.

Those that exceed 30% of the voting capital will have the same period to dispose of the shares or will have to sell at twice the average price of the previous 504 days.

Currently, the private shareholders with a relevant stake in the company’s total capital are Banco Clássico, owned by banker Juca Abdalla, with 4.18% of the total capital, and asset manager 3G Radar, with 1.96%.

With the advance of the capitalization process, the company’s common shares appreciated 31.6% in 2022. Preferred shares rose 30.6%.

Based on the sales model, capitalization is expected to attract investment funds, not operators in the energy sector, whose interest is greater in companies in which they can exercise control or have greater power to influence management.

Responsible for almost a third of Brazil’s power generation capacity, Eletrobras is the largest energy company in Latin America. With 105 plants and 13,000 employees in all regions of the country, the company accounts for 44% of the national transmission system.

In 2021, the company earned BRL 44.4 billion and had a net profit of BRL 5.7 billion. This year’s balance sheet would be used as a basis for defining the price parameters for the share offering, but the delay in the analysis by the TCU (Union Court of Auditors) delayed the process.

In the first quarter, a period that should be used as a parameter if capitalization occurs until August, the company had a net profit of R$ 2.7 billion and revenue of R$ 10.2 billion.

Approval by the TCU took place on Wednesday (18), paving the way for one of the largest stock exchange operations in Brazilian history.

The government’s plan is to obtain R$ 67 billion by relinquishing control of Eletrobras, divided between grants paid in cash to the Union, a deposit to the CDE (Energy Development Account) and investments in the São Francisco river basin.

Now, the government is racing against the clock to carry out the operation. The next step is to register the transaction with the CVM (Securities and Exchange Commission, the authority responsible for overseeing the market) and with the SEC (Securities and Exchange Commission, the American CVM).

The need to notify the US regulator exists because the company has shares traded in that country and, therefore, both bodies (CVM and SEC) need to receive the information.

The deadline would be mid-August, considering the legal term for operations after the release of balance sheets. The approximation of the electoral calendar also tends to increase tension between investors and may, as a consequence, make the operation unfeasible.

The more time passes, the greater the risk of turmoil and the window of opportunity closing. Some members of the government even question whether this window has not already closed – although the last word is one of optimism.

Survey of Sheet based on data from B3 in the last 18 years shows that the average number of operations drops 34% in years of dispute for the Palácio do Planalto. Considering only second semesters, the average amount drops by almost half (46%) in presidential race years.

The offer seeks to dilute the Union’s share, which needs to fall from 72% to 45%, raise funds to pay the grant to the State and transform the company into a corporation. No shareholder may hold more than 10% of the total shares.

Priority offers are planned for shareholders, employees and retirees. There will be space for institutional operators and small investors. As in other privatizations, it will be possible to use half of the funds deposited in the FGTS (Fundo de Garantia do Tempo de Serviço), via funds, to participate in the offer.

NEXT STEPS

After approval by the TCU, banks begin the issuance process

• Officialize deliberations within the BNDES and the government
• File the transaction with the CVM and the SEC
• Launch the offer, based on the results of the first quarter of 2022; prospectuses are already being updated
• Promote the roadshow, as they are called visits to investors to present the company, which will be shorter because there was a previous work and there is a rush to reach the issue
• Pricing paper (“pricing”)
• Carry out the operation on the Brazilian and New York Stock Exchanges in the first week of June

WHO IS IN THE OPERATION

In addition to the BNDES, there is a syndicate made up of private banks operating in the market

Leaders, who introduce the company:

• bank of america
• BTG Pactual
• Goldman Sachs
• Itaú BBA
• XP Investimentos

Bookrunners, who make reservations:

• Bradesco BBI
• Federal Savings Bank
• citiban
• Credit Suisse
• JP Morgan
• Morgan Stanley
• harvest

Eletrobras privatization began in the 1990s and suffered several mishaps

FHC (1995-2002): During the FHC government, the attempt to sell Eletrobras to the private sector began. The measure was resisted and did not materialize, but during his term, the president privatized almost all distributors, including Escelsa, a distributor in Espírito Santo, Light, in Rio de Janeiro, and Gerasul, which operated in the south. from the country

Lula (2003-2010): In addition to putting the plan to privatize the state-owned company on the shelf, the PT government curbed sales by distributors, but continued with transmission and power generation auctions. Among the initiatives that marked that moment are the start of wind energy auctions, in 2009, and that of the Belo Monte Power Plant, in 2010

Dilma (2011-2016): In six years in power, Dilma followed the guidelines adopted by Lula. Auctions were held for transmission lines and hydroelectric plants — such as Três Irmãos, in São Paulo

Temer (2016-2018): Two months after assuming the presidency, Temer resumes privatizations and cleans up one of Eletrobras’ biggest liabilities, selling loss-making state distributors that were under the umbrella of Eletrobras. There were six in all

Bolsonaro (2019-2022): In addition to bringing Eletrobras’ privatization plans to the fore again, Bolsonaro followed in Temer’s footsteps in the auctions of distributors, such as those of CEB (Companhia Energética de Brasília) and CEA (Companhia de Eletricidade do Amapá).