Brazil’s government and Eletrobras reached a mediation agreement allowing the state to appoint three board members while releasing Eletrobras from financing a nuclear plant. The government aims to regain influence post-privatization. The deal is expected to stabilize the company’s financial outlook, culminating in a share price increase following the announcement.
Brazil’s government and Eletrobras, the nation’s leading power company, have reached a significant agreement through mediation. This deal will permit the state to nominate three members to Eletrobras’ board while exempting the company from any additional investments in a contentious nuclear project. The discussions have been ongoing since 2023, aiming to restore governmental influence in the company following its privatization in 2022.
As part of the arrangement, Eletrobras disclosed that the next step involves drafting a conciliation term for shareholder approval and subsequent validation by Brazil’s Supreme Court. Following the announcement, the company’s shares surged by over 5%, making it a notable performer on the Bovespa index, with analysts viewing the deal as an important stride in mitigating risks for the utility.
The Brazilian government holds over 40% of Eletrobras’ common shares but, under the privatization agreement, can only wield voting power on 10% of that stake. President Luiz Inacio Lula da Silva has criticized the privatization initiated by his predecessor and subsequently urged the Supreme Court to permit proportional voting rights for the government, which led to the mediation process.
According to the new terms, while the 10% voting cap remains, the board will increase from nine to ten members, with three of those appointed by the government. Analysts from Itau BBA regard this development as favorable for Eletrobras and in line with previous expectations of government representation on the board.
The agreement also addresses unresolved issues related to Eletronuclear, Eletrobras’ partner in the Angra 3 nuclear plant project. Notably, Eletrobras is no longer obligated to fund this project but will continue to secure existing loans associated with it. Additionally, the firm will contribute to debentures issued by Eletronuclear aimed at extending Angra 1’s operational lifespan.
The government has expressed willingness to support Eletrobras should it choose to divest its stake in Eletronuclear. Analysts from JPMorgan emphasized the significance of removing further funding obligations for Angra 3, regarding the preservation of the voting cap as a positive aspect of the deal.
In summary, the agreement between Brazil and Eletrobras marks a pivotal moment for the state-owned utility, allowing for greater governmental influence in corporate governance without the burden of additional financial obligations pertaining to controversial nuclear projects. The deal is anticipated to stabilize and de-risk Eletrobras’ future operations, while also realigning shareholder interests with government representation.
Original Source: www.tradingview.com
