Brazil’s government and Eletrobras have struck a deal enabling the state to appoint three board members and exempting the company from further investments in the Angra 3 nuclear project. The agreement maintains a 10% voting power cap, aligning with ongoing government efforts to regain influence in the privatized company since 2022. The deal is viewed favorably by analysts, indicating a positive outlook for Eletrobras.
In a recent mediation arrangement, Brazil’s government and power company Eletrobras have come to an agreement that allows the state to appoint three individuals to the company’s board of directors. This accord also relieves Eletrobras from the obligation to invest further in a controversial nuclear power project. Negotiations regarding this deal have been ongoing since 2023, with the government aiming to regain influence in Eletrobras commensurate with its stake in the organization, which was privatized in 2022.
Eletrobras disclosed in a securities filing that both parties will collaborate to draft a conciliation term to be approved by existing shareholders and recognized by Brazil’s Supreme Court as part of the settlement. Following this announcement, Eletrobras shares in Sao Paulo surged over 5%, marking significant gains on the Bovespa index as analysts viewed the agreement as a means to mitigate risks for Latin America’s largest utility.
Currently, the Brazilian government holds more than 40% of Eletrobras’ common shares; however, privatization has restricted its voting rights to a maximum of 10% of that stake. Leftist President Luiz Inacio Lula da Silva has consistently criticized the privatization conducted by his predecessor, Jair Bolsonaro. In his inaugural year, he requested the Supreme Court to allow proportional voting power to the government, leading to the mediation process.
The newly established agreement preserves the 10% voting power restriction while enabling the government to appoint three members to Eletrobras’ board, which will expand from nine to ten total members. Analysts from Itau BBA lauded the terms of the deal as highly favorable for Eletrobras, noting that the inclusion of government-nominated board members aligned with previous expectations.
The agreement further resolves issues related to Eletronuclear, the state-run nuclear power corporation in which Eletrobras is a stakeholder. Notably, Eletrobras will no longer be mandated to fund the completion of the Angra 3 nuclear project, while still guaranteeing 6.1 billion reais in loans from the construction’s protracted 40-year timeline. Additionally, Eletrobras will subscribe to 2.4 billion reais worth of debentures issued by Eletronuclear to prolong the operational life of the Angra 1 plant.
The government has also pledged to support Eletrobras in efforts to divest its stake in Eletronuclear. Analysts from JPMorgan remarked, “The main positive among the terms is that Eletrobras would no longer be committed to future capital increases to fund Angra 3,” emphasizing the remainance of the voting cap as an advantage.
In conclusion, the agreement between the Brazilian government and Eletrobras marks a significant reversal of the company’s obligations in regard to the Angra 3 nuclear power plant while also allowing for increased governmental oversight through board appointments. The restructuring reflects efforts to balance public ownership and influence in the privatized utility sector, with potential long-term benefits for Eletrobras and its stakeholders.
Original Source: www.tradingview.com
