Brazil's Gerasul Sale Is Bright Spot Amid
Market Gloom
By STEPHEN WISNEFSKI
Dow Jones Newswires
SAO PAULO -- The successful privatization of a Brazilian electricity
generator Tuesday should give a sorely needed dose of confidence to the
country's fragile financial markets, analysts said.
The government sold a controlling stake in Centrais Geradoras do Sul do
Brasil (E.CGB), known as Gerasul, for the minimum asking price of 945.7
million reals (BRL)($1=BRL1.18) to Belgian utility Tractabel SA
(N.TRB), the sole bidder.
Gerasul is the first generator to be turned over to private investors
following two years of state divestment from power distribution assets.
Although market and government sources had anticipated ample
competition and a premium over the minimum price of up to 30% in the
days leading up to the auction, analysts said they weren't disappointed with
the result.
"It's not a great success, but it was a positive result without a doubt," said
Fernando Oliveira, an analyst at Sao Paulo's Banco Fator. "The minimum
price was reasonable, but you have to remember that it was set (in
January) when the economic scenario was completely different."
Analysts had pointed to Tuesday's auction as an important indication of
foreign willingness to brave Brazil's financial markets, where stock prices
have tumbled, fresh foreign investment has evaporated and the currency
has come under pressure.
"Obviously, it could have been better, but the cash flow is very good," said
Roberto Dumas, utilities analyst at BBA/Paribas in Sao Paulo. "In this
turmoil, 1 billion reals coming in is a great result."
Brazil's foreign reserves have dropped close to the $50-billion mark from
$70.21 billion at the end of July.
In an effort to attract bidders, the National Development Bank (BNDES)
- which oversees Brazil's massive privatization program - announced last
week that it would provide financing for up to 40% of the Gerasul
minimum bid price.
Belgium's Tractebel said Tuesday that it wouldn't take advantage of the
BNDES credit line, making the purchase price sound even more attractive
to analysts.
"I would say the auction was a success because it introduced a major new
player into the Brazilian market, and they're coming in with all new
money," said Charles Barnett, utilities analyst at Lehman Brothers in Sao
Paulo. "It's a big vote of confidence that a foreign company is willing to
invest $800 million at this point."
Brazil's stock market is also putting its stamp of approval on the auction
result.
After slumping in the first half hour of trading, the Sao Paulo Stock
Exchange's benchmark Bovespa Index soared 16% to 6755 just past
midsession.
"Initially, the market was disappointed (with the result) because there was
only one bidder paying the minimum," said BBA/Paribas's Dumas. "But
then they woke up and realized that the result was actually pretty good,
especially considering Tractebel won't use BNDES money."
Gerasul ordinary shares were up 18% to BRL1.18. Shares in Gerasul's
former parent company Eletrobras (E.CEB) had tacked on 16.6%, trading
at BRL26 per thousand.
While the auction results were widely viewed as positive, even Tractebel
acknowledged that now is a risky time to be investing in Brazil.
Tractebel Director Gil Maranhao said that the company had considered
dropping out of the race but that a "belief in the Brazilian market" helped
Tractebel overcome doubts.
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