RIO DE JANEIRO, BRAZIL – The final model for the privatization of Companhia Riograndense de Saneamento (CORSAN) should be ready this month. The plan is to hold an initial public offering (IPO) that will result in loss of the state’s controlling share interest.
Some definitions are still lacking, such as what the government’s share will be at the end of the operation, explains its president Roberto Barbuti. However, the plan is to submit the bill in the coming weeks.
Should the operation be successful, CORSAN will be the first public sanitation company to be privatized in Brazil. Currently, three other companies have shares traded on the Brazilian stock exchange – Sabesp (SP), Copasa (MG) and Sanepar (PR) – but the state government remains the controlling shareholder in all of them. “The plan is to remove the bureaucratic ties that mixed capital companies are still subject to,” he says.
To this end, a bill with the IPO terms will still need to be passed. On Tuesday, June 1, the government had a positive sign from the state Legislative Assembly, which passed a Proposal for Constitutional Amendment (PEC) lifting the requirement of an Assembly vote to approve the sale of some state companies, CORSAN among them.
The plan is to make the offer “at the turn of the year,” according to Barbuti. Recently, the BNDES (National Bank for Economic and Social Development), which is working on the structuring, assessed that the change should be left for the first quarter 2022.
The president of the state-owned company foresees three challenges ahead. The first is political, as deputies’ approval will be required. The second will be negotiations with municipalities.
According to the new sanitation law, all current contracts must be adapted to include the new requirements. In the event of privatization, the rule also allows for other changes in the contracts’ terms – including the extension of deadlines.
Finally, there is also the challenge of strengthening the state’s regulation. “CORSAN has no history of problems with agencies, but there is still work ahead,” he says.
The executive says he is confident in the process and sees a favorable moment in the market for the offer. “CORSAN has the elements for a ‘turnaround’ [a process of internal restructuring and improvement of results]. The pricing will depend on the degree of confidence in relation to the investment plan and the ‘unlock value’ potential,” he says.
CORSAN operates in 317 cities in the state of Rio Grande do Sul, with about 6 million inhabitants. The water universalization rate stands at 96.7%, and the sewage rate at 16.3%. In 2020, the company invoiced R$3.15 billion (US$620 million), an annual increase of 10.7%, and had a net profit of R$1.8 billion, a result 5 times higher than in 2019.
Source: Valor