Government and Eletrobras rework privatization schedule and see elections as a challenge

The request by the TCU (Union Court of Auditors) to analyze the privatization of Eletrobras for another 20 days led the government and the company to redo the schedule of the next steps in the process, but maintain the effort to complete the operation this year. The sale of company shares is among the main priorities of Minister Paulo Guedes (Economy) in the final stretch of the term of President Jair Bolsonaro (PL).

Executive and company members consulted by the Sheet sought to demonstrate an optimistic view this Thursday (21) by saying that privatization can still happen in a window that closes in mid-August. They reinforce that there are no legal impediments for the operation to take place so close to the elections and that the mobilization in the Executive is great to complete the process.

However, market conditions in 2022 are recognized by these people as the main risk of the process. As the operation will be carried out on the Stock Exchange, the approximation of the electoral calendar tends to increase tension between investors and may, consequently, make the operation unfeasible. The more time passes, the greater the risk of turmoil.

The Union currently has a 72% stake in the voting capital of the largest energy company in Latin America, and another 28% is held by minority shareholders. The government’s intention is to give up control and, at the end of the process, to hold 45% (the other shareholders would keep 55%).

In the view of the government and the company, the first stage to be overcome now is precisely the conclusion of the analysis by the TCU, after the request for inspection made by Minister Vital do Rêgo last Wednesday (20th).

Expectations about this phase are partly optimistic, as most members of the body have already expressed themselves in favor of the operation. Even so, the need for a relevant change as required by the court is not ruled out, which can complicate the scenario.

If the process is approved without the need for significant changes, the government gets the green light for the next step – register the transaction with the CVM (Securities and Exchange Commission, the authority responsible for overseeing the market) and the SEC (Securities and Exchange Commission, the US CVM). The need to notify the US regulator exists because the company has shares traded in that country and both bodies need to receive the information.

With the request for inspection by the TCU, there is no more time to register the transaction with the CVM and the SEC until the legal deadline previously considered (May 14, or 134 days after the closing of the last balance sheet).

Now, the information can only be delivered to the regulators as of May 16 – when Eletrobras’ first quarter balance sheet will be published.

From there, the technicians calculate that the regulators can analyze the case in a period of approximately 20 days. In parallel with the request at the CVM, the stage of serial presentations to investors (the so-called “road show”, which aims to attract interested parties) would begin – which would last two or three weeks.

Therefore, it is said that it is possible to carry out the operation between June and the beginning of July – with the deadline of August 12, considering the period of 134 days after the last day of the published balance sheet (March 31).

If it is not possible to complete the operation within this period, there would still, in theory, be a chance to do it later – until mid-November. But, in this case, the date would be right after the second round of elections (which will take place on October 30) and the variables involved would greatly complicate the scenario.

The sale of Eletrobras shares is crucial for Guedes, who promised privatization during the 2018 campaign and later said he was frustrated at not having been able to move forward on the issue (despite several subsidiaries, such as Petrobras, having been sold).

For him, Eletrobras does not have the capacity to invest the amounts necessary to meet the Brazilian energy demand over the next few years. Privatization, he says, would mobilize resources to diversify the country’s generation matrix, make generation cleaner, recover watersheds and allocate money even to nuclear energy.

According to the minister’s accounts, the company would need to invest around R$ 15 billion a year to maintain its relevance in the Brazilian energy matrix, but it can only invest R$ 3.5 billion. “The company not only puts itself at risk and loses that market share, [como] jeopardizing Brazilian energy security,” he said this month.

At the same time, presidential candidate and poll leader Luiz Inácio Lula da Silva (PT) has criticized the operation. “I hope that serious businessmen who want to invest in the Brazilian electricity sector do not embark on this weird arrangement that the moneylenders in the country of the current government are preparing for Eletrobras, a strategic company for Brazil, months before the election,” Lula said in February in social network.