Brazil Raises $6 billion in Eletrobras Shares

On Thursday night, the government of Brazil went ahead with their bid to private the largest utility in Latin America, Eletrobras. They have priced the share offering through which the government’s stake will be diluted. The utility is formally called CentraisElectricasBrasilerasand it disclosed on Friday morning that the total funds that would be raised through the share offering are about 29.29 billion reais, which is around $5.97 billion. This puts the price per share to be around 42.00 reais.

What does the Offering Include?

It should be noted that the total that the company has announced includes a primary and secondary share offering. The former are those that have been issued by the company, while the latter are those that were in the possession of the state development bank. There will be a 15% increase in the total offering in case they fully exercise the greenshoe option meant for stabilizing the price. This would bring it to about 33.68 billion reais, or $6.87 billion.

Sources have revealed that there was a strong demand for the deal, due to which the additional shares had been sold. This has helped it become the second-largest share offering to have occurred globally in this year. Sources with knowledge of the matter had disclosed the price on Thursday.

The country’s president, Jair Bolsonarohad made significant pledges before he took office back in 2019 in regard to sales of state assets. However, he had not been able to deliver on many, so this sale was considered a crucial one for him. He refers to himself as an advocate of a free market and will be going up against the former president of the country in the presidential elections scheduled for this year in October. Luiz Inacio Lula da Silva will be competing against Bolsonaro and the former has been quite vocal against privatizations.

Shares of Eletrobras Down

There was a 5.7% drop recorded in Eletrobras’ preferred shares on Friday, as they fell to 40.06 reais. It was one of the biggest losers in the Bovespa stock index of Brazil, which suffered losses of 1.3% for the day. Market analysts said that this move was not because of panic, but only due to speculation. It was further noted that a number of investors who had recently purchased shares of Eletrobras had decided to sell them after the announcement of the price.

The stake of the Brazilian government in the utility is around 72% right now, but it will drop down to 45% after the sale. As opposed to some of the other sales of big state assets, control was not given to a single investor, whether local or foreign, because individual stakes had a 10% ceiling imposed on voting rights. However, the shareholder structure of the utility has not been disclosed as yet.

The deal is the largest share offering in Brazil in about 12 years and its demand was in excess of $14 billion, as it had garnered interest from retail and state investors, hedge funds, pension funds and also long-only portfolios.