Latin America Equity Issue: Eletrobras’ R$33.7bn follow-on

IFR Awards 2022
3 min read
Jo Bruni

Power play
Brazilian state-owned utility Eletrobras laid the groundwork for its financial rehabilitation through a R$33.7bn (US$6.9bn) follow-on in June, a privatisation that threaded the needle between the interests of the Brazilian government and those of global investors that participated.

The sale, which saw the government diluted to a 40.3% minority ownership, had been in the works since the early 1990s.

"We knew it would be a challenge for us to attract new investors because our story was so complex and we were a government-owned entity," said Eletrobras CFO Elvira Presta. "I personally conducted over 300 one-on-one meetings to educate investors about our new business model.

"On some days, there were seven meetings."

Shares were sold by Eletrobras and Brazil's development bank BNDES at R$42, a 4.6% file-to-offer discount, with post-greenshoe proceeds making it the second-largest offering from the country, behind only the R$120.4bn raised by Petrobras in 2010.

Eletrobras used the cash to pay the Brazilian government R$31.4bn, with a commitment to pay another R$27bn over the next 30 years. Further investment commitments mean obligations to the government total R$75bn.

In exchange, Eletrobras is transitioning towards market-based pricing for its power from a tariff-based system that had forced it to sell at subsidised prices – in 2015, net losses of R$14.4bn led the utility to consider filing for bankruptcy protection.

The privatisation of Eletrobras, the largest electric utility in Latin America with 43GW of installed capacity, was politically charged coming ahead of the presidential election in October. That election was won by Luiz Inacio Lula da Silva who had railed against the sale, stating Brazil would "lose a good part of its sovereignty and energy security”.

Eletrobras hired Laplace Financas as an independent adviser to help select banks based on clear criteria, including research coverage, seniority of ECM practice and distribution capabilities.

BTG Pactual was mandated as lead-left among the global coordinator group with Bank of America (stabilisation agent), Goldman Sachs, Itau and XP Investments, plus seven bookrunners.

As an additional layer of cover, BNDES (assisted by financial advisers Banco Genial and BR Partners), the Board of the Investment Partnerships Program and Brazilian Federal Court of Accounts together set a minimum price that was kept secret until pricing was set.

"It was very challenging for all of us," said Presta. "What happens if there was a small difference in price? We had to make a decision without knowing what the minimum price was."

It was later disclosed as R$39.96 per share.

While publicly marketed for only two weeks, extensive pre-marketing led by Presta helped secure commitments from seven institutions, three foreign investors and the balance local Brazilian funds. Overall, 40% of the deal was allocated to international investors, a strong show of support in the long-term prospects of Eletrobras.

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