Eletrobras conditions privatization to Furnas’ contribution to Santo Antônio

The prospectus that deals with the capitalization of Eletrobras highlights that a new event has become vital for the operation that will reduce the presence of the State in the company: the financial assistance of Furnas (a subsidiary of the state-owned company) to Madeira Energia —controller of the Santo Antônio hydroelectric plant, in Rondônia. If the procedures for this capital injection are not completed in little more than a week, privatization will be suspended.

Furnas is a partner in Madeira Energia, with a 43% stake, and announced that it is preparing to take on a capitalization in the company that needs to reach R$ 1.5 billion. The contribution will cover the costs of Santo Antônio’s defeat in an arbitration court.

With this operation, Furnas would take control of the company, reaching a 70% stake.

Other shareholders of Madeira Energia are Odebrecht (18.25%), renamed Novonor, the Caixa FIP Amazônia Energia fund (19.63%) and SAAG Investimentos (10.53%), with the participation of Andrade Gutierrez. None of them expressed interest in accompanying Furnas in the investment operation, and Cemig’s partner (8.53%) reported not being interested in joining.

To make this capitalization, however, Furnas needs approval from the holders of debentures issued by it in 2019. Furnas has already called a meeting with these investors for the 30th. If there is no quorum on the date, the meeting will be transferred to the 6th. of June.

The preliminary prospectus for the capitalization, sent to the CVM (Securities Commission) this Friday (27), highlights that, without the approval of the debenture holders until the 6th, the global offer that marks the privatization will be suspended. According to the text of the prospectus, this decision was approved by the board of directors of Eletrobras also this Friday.

Lawyers consulted by the report, who preferred not to be named, consider that, despite the tight deadline, Furnas is able to complete the requirements to cover Santo Antonio’s financial needs.

A specialist in the area points out that there is an alternative to collecting signatures from 100% of the debenture holders, if the issuance is concentrated in larger institutions. Thus, the continuation of an operation can have a more flexible rite in the assembly. But he also recalls that the challenge of bringing together the holders of the paper is greater when the debentures are pulverized in the hands of a large number of individuals.

There is another reason the outlook is more positive.

If Furnas is unable to meet all the financial requirements to meet the cost of arbitration, the application of the judgment will trigger what is called a cross default — the execution of debts and guarantees of Furnas and Eletrobras

The prospectus details the scale of the problem. “If Furnas is not successful in obtaining these approvals, [waivers]the fiduciary agent must declare the early maturity of the obligations”, says the text. “In this case, the debenture event may cause the early maturity of other Furnas debts, approximately 63.6% of the consolidated indebtedness”

The text continues. “Continuously, the Furnas event may cause the early maturity of other debts of the company, approximately 42% of the consolidated indebtedness.”

According to the prospectus, as of March 31, 2022, Furnas’ consolidated total indebtedness was R$7 billion and that of Eletrobras was R$41.6 billion. “If such an early maturity occurs, Furnas believes it will not be able to honor the payment of the majority of its indebtedness, just as the Company understands that it does not have sufficient resources to pay the majority of its indebtedness”, states the text.

This Friday, Eletrobras also republished the balance for the first quarter, highlighting these issues.

The state-owned company had been questioned for not properly reporting the effects of the arbitration. On May 17, Eletrobras servants took the matter to the SEC (the US capital market regulatory body). In the document filed at the time, they stated that the company omitted from its shareholders the dimension of the risks.

The detailing made by the company, however, had the opposite effect on the market. The seriousness of the consequences described in the prospectus was considered so great that the interpretation of analysts and lawyers is that the warnings are more protocol than warnings of concrete problems.

STREET OPERATION

With regard specifically to capitalization, the prospectus highlights that the global transaction on stock exchanges tends to move around R$ 35 billion, considering a supplementary lot, of up to 15% of the total shares, and the value of the paper on Thursday (26).

The operation will involve a primary and secondary offering of common shares carried out simultaneously in Brazil and abroad, which would dilute the State’s interest in the company from 72% to at least 45%.

Eletrobras executives involved in the capitalization process practically did not sleep on the eve of the operation, dedicated to meetings that started at dawn and resumed in the morning.

Also started this Friday, in Rio de Janeiro, the road show (presentation of the offer to investors). Over the next one, talks abroad are also planned. The share price is scheduled for June 9th.

Sought by the report, Furnas stated that information about the capital contribution to the Santo Antônio hydroelectric plant has been disclosed by Eletrobras in market announcements. Eletrobras, on the other hand, did not manifest itself until the publication of this text.

with Reuters