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Financial News: ELETROBRAS: Government Proposes Issuance Of New Shares To

ELETROBRAS: Government Proposes Issuance Of New Shares To Privatize Company

11/30/2017 - 13:40:00 (RTTNews)

(RTTNews) - The Brazilian Ministry of Mines and Energy (MME) formally proposed to cut its stake in Eletrobras by selling new common shares of the state-owned energy company and, if necessary, selling part of the stake it holds in the firm.

Eletrobras would have to sell 553,036,344 new common stocks to decrease the Brazilian government share in the company to less than 50%. Currently, the country's total stake in the firm is 75.4%.

Eletrobras said that it might raise up to R$ 11.2 billion with the new share offer and that it could sell more shares than the minimum required to cut the Brazilian government stake in the company to less than 50%.

According to the Brazilian government, this is the best way to privatize Eletrobras because the company would not receive a single penny if the government sold 25.4% of its shares in the company directly to investors.

Also, diluting the public sector stake in Eletrobras in exchange for new capital would address another problem: the fact that the Brazilian government wants the company to bid for new concession contracts for some power plants it already operates. The company does not have the money for that currently.

The new contracts would allow Eletrobras to set higher prices for electricity in those power plants.

Currently, some of Eletrobras' power plants operate under a particular regulatory framework in which payments amount only to the company's operating and maintenance costs. The price of the energy is lower than market prices under that scheme, but the company is exempt from some regulatory fees.

Eletrobras would have the right to choose whether to keep the plants under the new regime and would pay the government for the rule change.

By issuing new shares, therefore, Eletrobras would not have to increase its indebtedness, keeping its capacity to invest in new projects, the government says.

The Brazilian government expects to complete the privatization of the power company by mid-2018, and the asset sale process will involve all the power plants currently operated by the firm, except for Itaipu and Angra, according to the plans presented so far.

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