Eletrobras puts off privatization plans until 2021

Eletrobras puts off privatization plans until 2021

Economy & Policy Corporate & Sovereign Strategy Energy Electricity Regulation Politics Coronavirus Brazil Latin America

Brazil has pushed back the planned privatization of the state-owned power company Eletrobras until 2021 as politicians focus on controlling the spread of the coronavirus.

Delaying the sale could have an effect on the price at auction, but it gives the company more time to lobby for a bill to approve sale in Congress, said Ricardo Brandão Silva, a board member at Eletrobras.

"We have already tried to do the groundwork by talking to Senators and Deputies in the lower house... to explain the project, show them the numbers and try to address their concerns," he said.

According to Brandão, politicians are concerned about national security implications if foreign state-backed companies can access strategic infrastructure assets in Brazil and if the eventual buyer will increase user rates after privatization, he said.

"After [the bill is passed], we can enact everything in six to nine months. It won't take longer than that. It is a pretty simple market operation," he said.

But the economic impact from the coronavirus outbreak means bidders may have to recalculate the value of Eletrobras. Currently, the value of the company is based on several factors, including price charged by Eletrobras, the discount rate and the level of hydrological risk to energy production, Brandão said.

"Two of these may be affected by the crisis. One is the price of the energy, which may now be lower, and the second is the discount rate because that takes into account interest rates in Brazil and US Treasury bonds, which are lower now," he said.

On March 18, Brazil's Central Bank cut the benchmark Selic rate by 50 basis points to a record low of 3.75% in a bid to mitigate the impact of COVID-19 on the economy. Three days earlier, the US Federal Reserve cut US rates to nearly zero and promised to buy $700 billion in Treasury bonds and mortgage-backed securities to keep the credit markets from seizing up.

Eletrobras will take steps to protect its bottom line in the face of a weakening economy. Later this year, the company will refinance debt that matures in 2021 and reappraise a five-year, BRL32.4 billion investment plan that was due to start in 2020, CEO Wilson Ferreira Júnior said during a conference call with analysts on Monday.

Ferreira also confirmed the privatization delay during the call and said postponing the sale would allow politicians to concentrate on controlling the spread of the coronavirus in Brazil.

As of Wednesday evening, Brazil's Health Ministry reported 6,836 confirmed cases and 240 fatalities from COVID-19, the disease caused by the coronavirus.