In the final stretch of privatization, Eletrobras has adjustments to make determined by the TCU (Union Court of Auditors). According to the court ministers, the recommendations must be completed by the time the paper is priced, at which time the value of the share is fixed.
The determinations change the criteria used in the modeling used to define the price and, in the opinion of those who follow the process, make the company more attractive, and can increase the value of the offer.
It will be necessary to adjust the macroeconomic assumptions to adjust them to the Central Bank’s criteria. In other words, update indicators such as IPCA (official inflation index) and Selic, the basic interest rate.
The court also called for changes to the cost curve, including updating the cost of maintaining wind power.
The rapporteur of the process, Minister Aroldo Cedraz, ordered the BNDES to adjust the long-term price criteria used in the projection of generation revenues. In his view, the privatized Eletrobras will have great market power and, therefore, will not enter into competition and sell its energy at the lowest cost sources.
The rapporteur does not suggest a new long-term price benchmark, he just tells the BNDES to make the change.
However, in his vote, Cedraz highlights: “A relevant point worthy of note concerns the projections of Eletrobras’ operating revenues, and my considerations will be concentrated on the projections of generation revenues.”
He states that Eletrobras “will significantly increase the percentage of purchase and sale in the free contracting environment, which in the next five years will rise from the current 35% approximately to more than 50% of the energy sold in Brazil.”
Given this, he highlights that he does not see “market logic” for a price reduction.
The most sensitive point, which must be included in the calculation, is that at the end of the concession period, the Federal Government will reimburse Eletrobras for investments in transmission that are not amortized.
According to a detail presented in his vote by Minister Walton Alencar Rodrigues, Eletrobras has not won a single generation or transmission auction since 2014.
The case report indicates that in 2011, Eletrobras held a 36% share in the energy supply and 58% in the transmission network. By 2021, the share had dropped to 30% and 40%, respectively.
The expectation is that this situation will change under private management, and the guarantee of reimbursement is an incentive for this.
The reading of those who accompany the process is that the determinations can be fulfilled within the prescribed period.
Banks and the government want to carry out the operation until June, to prevent capitalization from entering the second half, when the electoral dispute cools the mood of investors.
The central theme in the final judgment in court, this Wednesday (18), was to approve the share price, defined based on studies by two consultancies. The price, however, must be kept confidential. Throughout the trial, the ministers made several comments indicating that they considered the value to be low,
Secrecy also makes the composition and details of requested changes hermetic.
Eletrobras’ share is around R$40, on B3. Compared to May 2020, the shares are up almost 70%. The increase usually occurs in the case of a follow-on, as the launch of shares is called when the company is already listed on the stock exchange, in the case of Eletrobras, which is on the stock exchanges in Brazil and the United States.
Some analysts estimate that, based on the results presented by Eletrobras in the first quarter, the shares should be quoted closer to the R$ 50 range, even without the conclusion of the privatization process.
The government races against the clock to carry out the operation as soon as possible. The sale of Eletrobras was modeled to occur through capitalization on the Stock Exchange. Shares and share receipts (ADRs) will be issued, respectively, in Brazil and the United States.
The offer seeks to move R$ 25.4 billion to dilute the Union’s participation, 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.
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