Privatized, Eletrobras (ELET3) gains efficiency and investment strength

Long awaited, the privatization of Eletrobras (ELET3;ELET6), through the capitalization of the company, via a share offering on the stock exchange – which will lead the Union to cease to be the majority shareholder, after being diluted – must come out of the paper and provide, over time, gains in operational efficiency, cost reduction, improvement in margins and investment capacity, say experts.

Turn your FGTS into an investment: use up to 50% of your FGTS to invest in Eletrobras, the largest energy company in Latin America.

All these benefits, however, will take place indirectly, as the allocation of funds from this specific offering differs from more traditional initial public offerings (IPOs) or secondary offerings (follow-on). This is because, according to its prospectus, the approximately 30 billion that can be raised will be allocated primarily to the payment of bonuses for grants of new energy generation concession contracts, replacing the current ones, of 22 hydroelectric plants.

In a report, Eleven Financial Research highlights that, once privatized, the company will be able to improve, on the strategic side, its capital allocation and portfolio management, while, on the operational side, advance in the efficiency of cost control and investment optimization, in addition to to generate improvements in corporate governance and in the treatment of tax contingencies and tax credits.

State moorings

The former director of the National Electric Energy Agency (Aneel), Edvaldo Santana, exemplifies the difficulties faced by Eletrobras as a state-owned company. He reports that the company’s energy transmission subsidiaries can no longer participate, for example, in segment auctions, because they delayed works, which, according to Aneel’s rules, is not allowed.

This caused damage to the company because it was fined and, in one of the cases, it lost the guarantee deposited in one of the auctions it participated, he reports. “This is a case of management inefficiency at Eletrobras. The expectation is that this will improve,” he says. According to him, state-owned energy companies no longer make sense.

According to Santana, of Eletrobras’ transmission assets, about 80% will have to undergo modernization. “In a short time, Eletrobras will have to invest in everything it already has. You have to have money for it and it’s easier with private capital”, he justifies.

investment capacity

Another tie to be unlocked, according to Santana, is in the new matrices of renewable energy, something that the company has been rehearsing investments for years, but which it cannot get off the ground.

“Eletrobras will now be able to invest, as all companies in the private sector are doing”, he explains, about the possibility of entering the wind, solar and natural gas sectors.

According to him, the company would go from being a major operator to a major investor in the sector. “The most important thing is that Eletrobras will have the capacity to invest again”, emphasizes the former director of Aneel.

Additionally, the company would have the potential to unlock value “looking outside Brazil”, comments the lawyer and partner of Madrona Advogados, Rodrigo Machado, who participated in the structuring of the privatization of CESP. He points out that the company has a lot of expertise in hydropower, which could be exported.

New investments in hydroelectric plants, in particular, are limited, as there are already other relevant players in place and even for environmental reasons, in addition to energy consumption in the next five years being limited: “Which may not even be worth making greenfield investments to have growth”.

However, the specialist believes in a strong investment in the improvement of existing hydroelectric assets. With regard to transmission, Rodrigo Machado says that it will be necessary to look at existing concessions to make them more profitable.

“Eletrobras has great expertise. They’re going to keep trying to expand into broadcast. It has room for increased service,” she says.

According to him, the diversification of the energy matrix is ​​a key point. “There will be modernization of assets and, in parallel, this expansion process will take place”, he says.

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privatization model

Claudio Sales, president of Instituto Acende Brasil, focused on studies in the electricity sector, says that “the capitalization model that is being adopted was the best possible, given the circumstances placed to move forward with this privatization”.

Acende Brasil had already carried out a study on the possible privatization of Eletrobras and the work indicated selling the state-owned subsidiaries separately and not exactly as is happening now, jointly.

According to him, “a strategic sector such as energy, having a group or company more strongly committed to control, with an owner’s perspective, and a long-term perspective, would be better than dispersed investors” – as is the model in which the Eletrobras will remain after the public offering of shares.

“Still, private management is incomparably better”, he says, in relation to the company’s current scenario, of Union control.

Machado adds that “it is not the privatization that we are used to seeing, because it will not have a controller”, but the electric company leaves the public power.

End of political interference

The president of Acende Brasil predicts that the privatized Eletrobras tends to be more efficient in all aspects, mainly because of the lower political risk.

“State companies are often the target of political use, with appointments of people often incapable. There are also factors intrinsic to the state-owned company, which take away the efficiency of the company – for example, a heavier bureaucratic control than a private company, because it has to be accountable to the citizen”, he says.

Furthermore, it reinforces that the objectives of private companies are clearer. State-owned companies can be used “to carry out economic policy and public policy”, ending up deviating from their original focus as a company. “This takes away competitiveness”, points out Sales.

Energy specialist Rodrigo Machado believes that one of the first measures after the public offering of shares will be the adoption of a voluntary layoff program to reduce costs, in addition to extinguishing swollen areas, bringing profitability gains.

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governance

According to the company’s prospectus, with the privatization, Eletrobras will have advances in terms of its corporate governance, based on the simplification of its management.

Among some of the points are the possibility of migrating the company to B3’s Novo Mercado; improvement of the mechanisms for forming the board of directors; and greater agility in the decision-making process, simplifying the decision-making structure.

Also, with the dilution of the Union’s participation to levels equal to or less than 45%, Eletrobras will become a “True Corporation” and will feature the creation of a “Golden Share”, with the government’s veto power only in case of resolutions aimed at altering the 10% limit established in the bylaws, without granting the right to propose statutory amendments.

In addition, there is also the applicability of thePoison Pill” (poison pill), which protects the company against possible hostile takeovers. Finally, it is worth mentioning that, as Eletrobras’ privatization process is regulated by law, any change that is necessary to reverse this scenario must also be approved by law.

competition issue

Another aspect that opens new perspectives for Eletrobras is the search for acquisitions. However, the fact that it counts on 25% of the country’s power generation park and about 40% of the transmission lines under its umbrella, raises the alarm about issues of a competitive nature.

Madrona Advogados partner Rodrigo Machado believes that “the electricity sector will be much more sensitive from a competitive perspective than it is today”, with the privatization of Eletrobras.

“What will tell if the efficiency will be good for the sector is the form of management that this company will have in terms of new investments, since it will be very well capitalized for this”, he evaluates.

For him, the company with new shareholders and capitalized will be able to acquire companies in the energy sector, “but there is a competition issue, especially if it makes a larger acquisition”.

Claudio Sales, from Acende Brasil, has a similar opinion. For him, any relevant acquisition by Eletrobras “will draw the attention of competition control bodies”.

“This picture certainly indicates that it will be accompanied (by Organs competition bodies) for its risk of abuse of market power”.

Turn your FGTS into an investment: use up to 50% of your FGTS to invest in Eletrobras, the largest energy company in Latin America.