SP should announce details of the privatization of Sabesp – 04/07/2024 – Market

The Government of São Paulo should define in the coming days what the privatization offer for Sabesp (Companhia de Saneamento Básico do Estado de São Paulo) will be like.

People familiar with the process interviewed by the report state that the model for the sale of shares has already reached the desk of governor Tarcísio de Freitas (Republicans) and that the announcement of the details of the privatization could be made between the 10th and 17th of April.

This includes information such as the number of shares that the state will put up for sale, the valuation (assessment of the company’s value) and the percentage of tariff reduction promised by the government.

The privatization modeling, as this stage is called, must first be approved by the CDPED (Privatization Program Board of Directors). With the hammer down, Tarcísio must call a press conference to announce the details.

According to people interviewed by Sheet, after disclosure, the government can now offer shares on the stock exchange within 30 days. The expectation, however, is that the privatization auction will take place by July.

The idea is for the Government of São Paulo to sell 30% of Sabesp, the maximum provided for in the law approved by the Legislative Assembly last year. Currently, the state owns 50.3% of the company.

However, according to people who follow the negotiations, this portion of sales could decrease. This is because Sabesp shares have appreciated a lot in recent times, which makes the purchase more expensive. The company’s shares closed last week trading at R$84. Two weeks ago, they were quoted at R$76.

Among the details that can also be defined in the modeling is Sabesp’s new statute, which will establish, for example, what the composition of the board will be and voting limits.

The document must also maintain the Government of São Paulo as the largest shareholder, placing a lock — called a “poison pill” in the market — that establishes an impractical value for the shares of any buyer trying to have a majority stake in Sabesp.

Furthermore, the new statute will establish who is in charge of choosing the company’s CEO. One possibility is that this prerogative will remain with the reference shareholder, while the state will be responsible for appointing the chief financial officer (CFO).

This new statute needs to be approved at a Sabesp meeting, but there should be no obstacles as the government currently holds most of the company’s shares.

Although the decision may leave the government’s hands, members of Tarcísio’s management consider it positive to keep the current president, André Salcedo, in the company, to give a sense of continuity in the company.

The figure of the reference shareholder is a desire of the Government of São Paulo so that there is a strategic group committed to the company in the medium term. The model is different from a full sale, when a company’s shares are pulverized on the stock exchange.

In the case of Sabesp, the reference shareholder would have at least 15% of the shares, ideally with experience in the sanitation sector.

Last week, Aegea, the largest private basic sanitation company in Brazil, said it was setting up a consortium in partnership with investment funds to become a reference shareholder.

According to CEO Radamés Casseb, the partners include investment managers Perfin and Kinea, as well as the main shareholders of Aegea, Itaúsa and GIC (Singapore’s sovereign wealth fund). There would still be others interested in negotiating to make up the bloc.

Aegea was already identified as one of those interested in becoming a reference shareholder. In addition to the group, companies such as Votorantim, Veolia, Equatorial, Cosan and J&F would also be investigating the offer.

A person familiar with the negotiations said that French company Veolia, one of the largest sanitation companies in the world, had signaled a reserve of 2 billion euros (R$10.9 billion) to offer in the Sabesp auction. When contacted, Veolia said that the statement is unfounded.

People familiar with the privatization of Sabesp say that the plan to have a reference shareholder was a way found by the Government of São Paulo to avoid an “Eletrobras risk”.

In this way, the state would be able to disperse control, while maintaining a group with greater influence on the company’s management.

They also want to avoid constant changes to the board of directors, seen as bad for the company’s image, as is the case with Vibra, the name of the former BR Distribuidora, privatized in 2019.

Sabesp recorded a profit of R$3.5 billion in 2023, 12.9% higher than in the previous year, according to a balance sheet released in March. Ebitda (earnings before interest, taxes, depreciation and amortization) was R$9.6 billion, 35.9% higher than in 2022.

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SABESP X-RAY

Foundation: 1973
Net profit 2023: R$3.5 billion
Market value: R$57 billion
Employees: 11,170
Municipalities served: 375
Population served: 28.4 million