Sao Paulo Seeks $5 Billion With Sale of Water Company Sabesp

(Bloomberg) -- Shares of Sabesp rallied to a record high after Sao Paulo State Governor Joao Doria said privatizing the water utility is still the “best option” if Brazilian lawmakers approve a bill that facilitates investment in sanitation.

Doria’s team expects the sanitation bill to start moving in Congress in August, together with the government’s plan to overhaul the tax system, as the approval of pension reform should clear the way for lawmakers to focus on other matters, Doria and his Finance Secretary Henrique Meirelles said in an interview in London. Selling control of the water utility, formally known as Cia de Saneamento Basico do Estado de Sao Paulo, could raise almost 20 billion reais ($5.3 billion), Doria said.

Shares of the utility jumped as much as 6.5% in Sao Paulo trading. It was the biggest increase in the Ibovespa index, which fell 0.6% on Thursday.

Read More: Privatization Hopes Turn Brazilian Utilities Into Emerging Stars

The second option would be capitalization, a route that would be pursued if the bill isn’t approved or if it’s changed in a way that gives too much competitive advantage for state-controlled companies, Meirelles said. In that case, the government would create a holding company to take over the state’s 51% stake in Sabesp and then sell 49% of that holding in the market, he said.

“With the privatization plan we would sell control, but the capitalization would still be at a very sizable amount,” Meirelles said.

Sabesp’s shares soared almost 60% this year through Wednesday, the best performance in the MSCI Emerging Markets Utilities Index, on the prospect the new legal framework for the sector will allow the state to move forward with the privatization.

“The market is reacting to Doria’s remarks,” Renato Pinto, an analyst at Eleven Financial Research, said in a phone interview. “But it’s important to mention that, while possible, Sabesp’s privatization will require the approval of the sanitation bill in Congress and Sao Paulo state assembly’s backing in order to proceed.”

To contact the reporters on this story: Telma Marotto in London at tmarotto1@bloomberg.net;Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Richard Richtmyer

©2019 Bloomberg L.P.