Eletrobras’ privatization process is a sign of the development of the Brazilian capital market

Former state-owned energy holding Eletrobras became a private company on June 9, after raising BRL 33.7 billion on a stock offer, which experts heard by Viewpoint Amec see as a sign of maturity of the Brazilian capital market.

They note that the traditional energy holding evolved from being a state-owned enterprise to becoming a corporation, a change that should lead to governance improvements and better services.

“It was an amazing achievement for the capital market. Eletrobras’ privatization meant a leap from childhood to adulthood as a corporation,” points out Guilherme de Morais Vicente, Amec’s vice-president and partner at Onyx.

The capitalization process was followed by significant changes in the company’s bylaws that should promote a power balance at Eletrobras. Thus, even though the Brazilian government remains a reference shareholder, there is a 10 percent voting cap, limiting the influence of the former controlling shareholder or the rising of a new controlling block.

Speaking of which, the notorious golden share that gives the Brazilian government vetoing powers in strategic affairs is significantly less strict in Eletrobras than in other former SOEs, like miner Vale or plane maker Embraer. In the case of Eletrobras, the government only has special powers when it comes to changes in Eletrobras’ voting rights, which eventually can protect its structure as a corporation.

Investors’ concerns regarding potential hostile takeovers or nationalization attempts were mitigated by two poison pills that demanded a high premium in case a given shareholder or block’s stake exceeds 30 percent or 50 percent of the company’s stock.

The election of a new board of directors is another good omen for Eletrobras. “It will be a board comprised of highly experienced professionals. We can already see the new company is taking steady first steps,” he says.

New perspectives 

One of the key arguments supporting Eletrobras’ capitalization was fundraising resources to ensure the company could resume investments and, consequently, offer better services.

For João Laudo de Camargo, a partner at law firm Bocater and a board director at BNDESPar, Eletrobras’ stock offer will allow the company to sign new contracts and take part in auctions — which financial conditions have prevented the company from doing in the past few years.

“There is an opportunity for generating value once the company leaves the government’s sphere. It is no longer subject to the constraints of public budgets and external controls. It can also strengthen the economic environment,” says the lawyer, a member of the Brazilian Institute of Corporate Governance (IBGC).

As a matter of fact, Eletrobras has already resumed its activities and offered a winning bid at a recent transmission lines and substations auction promoted by regulator Aneel. The energy holding must invest BRL 137.7 million according to the auction rules.

According to the experts, Eletrobras’ capitalization shows how important it is to reach a consensus for new privatization processes. The energy sector is a highlight, with cases such as Vibra Energia (formerly BR Distribuidora). It was a subsidiary of a mixed-capital company and then became a corporation following a stock offer.

Balancing interests

To move forward with such processes, says Mr. Laudo, the government and society must define which SOEs are relevant to the public interest. Those who still have a public role should be listed in a stock exchange and keep improving their governance practices. “Enforcing the SOE Law and updating bylaws are critical measures to improve the corporate governance practices of those companies.

Mr. Laudo also notes some groups have a key role within such a company’s governance framework. Among them, he quotes are the Governance Office, which can diminish potential political interferences, and the eligibility committee, which analyzes nominees for management positions.

Regarding the latter, the federal government has recently issued a decree to set the attributions of the eligibility committee in state-owned enterprises. It defines the profile of professionals that could be part of such committees and their respective roles, in another move that could strengthen the companies’ corporate governance practices.

The case highlights the role of regulations in balancing public and economic interests within SOEs. For Fernando Soares, former Secretary at the Ministry of Economy’s Secretariat of Coordination and Governance of State-Owned Enterprises (Sest), regulation could be a good way to enforce previously-negotiated solutions, especially for mixed-capital companies.

“The government can’t simply use SOEs to carry on public policies at any cost,” he explains. “On the other hand, when a minority shareholder invests in that company, they know it serves a public policy, else its existence could be reassessed.”

For Mr. Soares, establishing norms or regulations to cater to minority shareholders’ interests without curbing the government’s ability to carry on with important public policies is important to balance interests in SOEs.