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Business News/ News / Sabesp Jumps as Sao Paulo Seeks Bidders for Privatization
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Sabesp Jumps as Sao Paulo Seeks Bidders for Privatization

Sabesp, Latin America’s biggest water utility, has finalized the model of a share offering that will effectively privatize the state-run Brazilian firm.

Sabesp Jumps as Sao Paulo Seeks Bidders for PrivatizationPremium
Sabesp Jumps as Sao Paulo Seeks Bidders for Privatization

(Bloomberg) -- Sabesp, Latin America’s biggest water utility, has finalized the model of a share offering that will effectively privatize the state-run Brazilian firm.

The process will be split in two stages — first, the company will select two so-called “strategic shareholders," based on who offers the highest price. Those investors will then anchor a follow-on to the broader market, in which two separate books will be built and compete to garner the most bids. The pricing for that stage will follow the one initially offered by the strategic holder, and whoever pulls the largest volume will be chosen as the winner and gets to hold 15% of shares in the new company.

The novel model for the sale, outlined by Sao Paulo’s Secretary of Environment, Infrastructure and Logistics Natalia Resende, is based on the premise investors will choose the best company to run Sabesp rather than price alone.

Sao Paulo state seeks to have its current 50.3% stake in Sabesp diluted to up to 18%, according to Resende, which would mean a divestment of a stake worth about $3.4 billion at current market prices. 

The final details on the process to privatize Cia. de Saneamento Basico do Estado de Sao Paulo, as the company is formally known, has been widely awaited by investors. Since the unveiling of the broad guidelines for sale at the end of July last year, shares have climbed about 40%. 

The conclusion of the process — expected by mid-year — would be a win for right-wing Sao Paulo Governor Tarcisio de Freitas, who has pledged to privatize companies to improve public services. 

Read More: Sao Paulo Government Eyes Selling 30% Stake in Water Utility 

Three board seats at the company will be held by the strategic shareholder, three by the government, while both will make the decision on the remaining three seats. Sao Paulo’s government will have some veto rights as the equity offering includes the issuance of a so-called golden share for the state. The government seeks to maintain a role within the company to ensure it meets an ambitious goal of universalizing services by 2033.

The decision on a two-stage process comes as Sao Paulo seeks to guarantee a strategic shareholder to anchor the transaction, who focuses on governance, said Resende. The details are also expected to improve transparency, preventing questions by the audit court. 

Shareholders will face a lock-up period until 2029, in which they won’t be able to sell shares. After that, the contract would be maintained as long as the strategic investor keeps at least a 10% stake in the company. 

The company’s valuation has yet to be defined, as well as the definition of a new CEO, said Resende.

--With assistance from Vinícius Andrade.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 18 Apr 2024, 11:04 PM IST
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