Shareholders to decide on Brazil’s Eletrobras capitalization this Tuesday

RIO DE JANEIRO, BRAZIL – The shareholders of Eletrobras are meeting this Tuesday, February 22, to decide on the company’s capitalization process, expected to occur through a stock offering on the Brazilian stock exchange, B3, and in New York. The operation is scheduled for May, sources said.

The electric company’s privatization will be done in the form of a capitalization, i.e., an offer of new company shares will be made. As the Federal Government will not invest in the offer, its share in the voting capital will drop from 72.33% to 45%, thus no longer controlling the state-owned energy company.

The Eletrobras meeting will be one of the last steps for the government to cease controlling the company – a discussion begun during Michel Temer’s administration.

At the meeting, shareholders will decide whether or not to authorize the operation, in addition to voting on a number of points required for the privatization, such as specific changes. The market expects minority shareholders to approve all items on the agenda, given estimates of share appreciation after capitalization.

NEXT STEP

After that, the last step for the offer to take place in May will be the approval of a minimum share price by the TCU.

The National Bank of Economic and Social Development (BNDES), responsible for the state-owned company’s sale process, has already set the price, and the TCU’s approval should occur by late March, a source said.

The minimum price will represent a value limit so that shares may be offered to investors, a mega-transaction that should range between R$22 (US$4.3) billion and R$26.6 billion, as disclosed by the company. The operation will take place in the Brazilian stock exchange, B3, and also in the New York stock exchange, Nyse.

Following a dispute over the concession value, the Federal Audit Court (TCU) gave the go-ahead for the operation last week. Justice Vital do Rego, who lost the vote, argued that Eletrobras would be paying less to the Treasury than it should, which was rejected by the other Justices.

HISTORY

This is the third time the Brazilian state has tried to privatize Eletrobras. The first was during Fernando Henrique Cardoso’s government (1994-2002). At the time, the plan was to privatize the group’s state-owned companies (Furnas, Chesf and Eletronorte) separately.

But the proposal failed. In Lula’s government, which began in 2003, the company was removed from the National Privatization Plan (PND). In Michel Temer’s administration (2016-2018), a Provisional Measure was submitted to Congress, which Bolsonaro used as the basis for the current privatization.