Brazil's largest water company gets city council green light for privatization

São Paulo city council gave the green light to go ahead with the privatization of Brazil’s largest water utility Sabesp.

Although the company is controlled by São Paulo state, approval of the council was a fundamental step in the sale process as the city accounts for almost half the company's revenue. 

In the event of a change of control of the company, the municipalities that are served by the firm can terminate their contracts immediately and open new tender processes. If the state capital decided to suspend its contract with Sabesp, this would have had a material impact on the company and would likely reduce investor appetite for the privatization.

Thirty-seven councilors voted in favor of the privatization and 17 against, according to a statement from the city council.

The state is planning to privatize Sabesp in two phases, with the government reducing its 50.3% stake and getting a private sector partner on board.

The first phase involves the sale of 15% of the firm to a strategic investor and the second a sale of shares on the market, open to individuals and investment funds. 

The strategic investor must keep at least 10% until 2034 and the state government would keep around 20% of Sabesp after the privatization. It will also keep a golden share, enabling it to influence strategic decisions and prevent a single group from taking control. The other 49.7% is already traded on the New York and Brazil stock exchanges.

A date for the operation has not yet been decided.

After the privatization, the company's board will have three independent members, three representatives of the strategic investor and three of the state.

With the privatization, São Paulo aims to advance its 260bn-real (US$50bn) investment plan to 2060. Of the total, 64bn reais will be invested by 2029 to achieve universal water and sewage service coverage in the 375 municipalities Sabesp serves.

Last year, Sabesp posted a net profit of 3.5bn reais, up from 3.1bn reais in 2022.