How São Paulo will privatize its water utility

São Paulo state will privatize its water utility Sabesp, Brazil’s largest, in two phases, with the government reducing its 50.3% stake and getting a private partner on board.

The first phase involves the sale of 15% of the firm to a strategic investor, a government spokesperson told BNamericas, and the second targets the capital market via an IPO, including individuals and investment funds.

The strategic investor must keep at least 10% until 2034 and the government could keep around 20% after the privatization. It will definitely keep a golden share, enabling it to influence strategic decisions and prevent a single group from taking control.

A date for the operation has not yet been decided, but prioritizing a strategic investor in the first phase should prevent attracting only investment funds, which would not be committed to the company in the long term.

"The offering of Sabesp shares comes at a turbulent time in the capital markets in Brazil and in the world, with upward pressures in interest rates that affect equity market activity," Carlos Daltozo, head of equity analysis at Eleven Financial Research, told BNamericas.

“Despite this, Sabesp's shares have appreciated, given investors' positive perspectives for the company's future business. This opens room for the company's share offering taking place in coming months.”

Daltozo also said the first phase will likely attract long-term operators, such as Veolia, Equatorial, Aegea and Votorantim.

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), 2060 investment plan. Of the total, 64bn reais will be invested by 2029 to achieve universal coverage in the 375 municipalities Sabesp covers.

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