Brazil Ruling Eases Sales of State-Owned Subsidiaries
June 07 2019 - 11:32AM
Dow Jones News
By Jeffrey T. Lewis and Paulo Trevisani
SÃO PAULO -- Brazil's Supreme Court voted to allow the
government to sell subsidiaries of state companies without
congressional approval, making it easier for President Jair
Bolsonaro's administration to raise money, cut debt and attract
private investment as the economy struggles.
The decision Thursday evening also allows the country's largest
state enterprise, oil major Petróleo Brasileiro SA, or Petrobras,
to continue its sale of noncore assets.
"Petrobras will go ahead with its disinvestments, which are
fundamental to reduce debt and generate value," the company said
after the ruling. Petrobras declined to say how much it plans to
raise. Market estimates point to more than $20 billion.
Potential buyers can now be confident Petrobras's asset sale
program will continue without interference from Congress, said
Pedro Paulo Silveira, an economist at the Nova Futura brokerage in
São Paulo.
"The decision removes a big question mark that was hanging over
the process," he said. "Congress could have used asset sales as a
bargaining chip, and potential buyers wouldn't like that at
all."
Following the court's decision, one of its members reversed an
injunction he issued in May barring the sale of Petrobras'
natural-gas pipeline operator Transportadora Associada de Gás SA
for almost $9 billion. That sale can now be concluded, Petrobras
said.
With the decision, the Bolsonaro administration will now be able
to carry out its plan to sell as many as 100 businesses more
quickly than would have been possible if it needed to go through
the country's splintered Congress. The cash-strapped government
aims to raise $20 billion through asset sales this year apart from
the sale of Petrobras' assets.
Getting congressional approval "would have added months or even
years to a privatization process, especially considering that this
administration lacks an organized base of support" in Congress,
said Leonardo Barreto, a political consultant in Brasília.
Dozens of parties are represented in Brazil's Congress and the
administration has had a difficult time getting legislation
approved because Mr. Bolsonaro's party doesn't have a majority in
either house.
The Brazilian government owns all or part of more than 130
companies. In addition to Petrobras are lenders Banco do Brasil SA
and Caixa Econômica Federal, news agency EBC and South America's
biggest electric company, Centrais Eletricas Brasileiras SA, or
Eletrobras.
A week after Mr. Bolsonaro was sworn in on Jan. 1, the new
infrastructure minister, Tarcisio Gomes de Freitas, said the
government planned to sell about 100 state-controlled companies,
though so far the administration hasn't announced which are on the
block. The government has said it would hold on to the stake in
Petrobras and keep the two big banks as well.
"The majority of the businesses the government plans to sell
aren't parent companies, they're subsidiaries," said Solange
Chachamovitz, chief economist at ARX Investimentos. "The decision
removes considerable legal uncertainty and clears the way for the
economy to become more productive."
Thursday's decision was based on an article in the 1988
constitution that says state companies can only be created when
needed for national security or for "relevant collective interest,"
and with congressional approval. The justices inferred that selling
those same firms must require lawmakers' vetting, but that selling
subsidiaries doesn't.
The ruling refers to injunctions on a broader case questioning
privatizations. The court is likely to revisit the issue when it
tackles the broader case. But that could take years to happen and,
meanwhile, Thursday's decision stands, according to a Supreme Court
spokeswoman.
The door remains open for allegations that privatizing
controlling companies like Petrobras, Banco do Brasil and CEF
wouldn't need lawmakers' blessing, said Marcio Holland, an
economist from Getulio Vargas Foundation who has researched
Brazil's state enterprises.
"The 1988 constitution establishes state participation in the
economy as the exception, not the rule," he said. "Because these
companies were created before the constitution, it can be argued
that their privatization wouldn't require congressional
approval."
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Paulo
Trevisani at paulo.trevisani@wsj.com
(END) Dow Jones Newswires
June 07, 2019 11:17 ET (15:17 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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