After almost a decade, an imbroglio arising from Dilma Rousseff government decisions in the electricity sector has reached a conclusion. In a historic agreement with the Ministry of Mines and Energy (MME) and the Office of the Attorney General of the Union (AGU), Auren Energia obtained compensation from the former Cesp for investments made in the Três Irmãos hydroelectric plant.
The settlement of R$ 1.7 billion will guarantee the company an injection of about R$ 4.1 billion at current values over seven years, favoring the generator's cash flow at a time when the company is seeking acquisition opportunities to grow.
Although the resolution was widely expected by the market, the terms of the agreement on Wednesday night surprised the market. Auren's shares closed up 5.74% yesterday, at R$14.38.
Credit Suisse and XP initially estimated a lower net present value - which helped justify the paper's rise. Analysts also keep on the radar the potential payment of extraordinary dividends as a result of the deal.
"Although Auren is focused on growth, with the new payouts (...) leverage should gradually reduce, meaning the company can pay a decent dividend," wrote Credit Suisse analysts Carolina Carneiro and Rafael Nagano. They point out that this can occur even in a scenario of acquisitions.
BTG Pactual analysts João Pimentel, Gisele Gushiken and Maria Resende say investors are looking forward to higher dividends, as "the chances look good, especially considering the possible change in the dividend tax regime next year.
Cesp had been fighting with the Union for compensation in Três Irmãos since 2014, after it did not agree with the values established by the Ministry of Mines and Energy at the time of Provisional Measure 579, which proposed the early renewal of hydroelectric plants, in a strategy that sought to reduce energy tariffs. The movement brought damage to the electrical sector without producing the expected results on the electricity bill.
Cesp, then the state-owned company in São Paulo, did not accept the proposal, and the plant was re-bid. The company would be entitled to compensation for unamortized investments, estimated at R$ 1.7 billion by the federal government. The company considered this value low and estimated its rights at R$ 6.5 billion. After negotiations with the government, the company went to court and even asked for this amount, but was unsuccessful.
Cesp was privatized in 2018. The management of litigation has always been considered one of the main points to be attacked by the new management, in charge of Votorantim and the Canadian pension fund CPPIB. After the privatization, Votorantim and the fund gathered other assets in the electricity sector and formed Auren Energia.
According to analysts, more than a year ago the company decided that it would make more sense to receive the amount calculated by the Federal Government, even if it had to give up additional amounts. With the agreement, the company must renounce the other judicial claims. The agreement will still be ratified by the 17th Federal Court of the Federal District in order to have legal effect.
The amount of R$ 1.7 billion will be updated by the Selic rate and amortized in 84 monthly installments, according to the Constant Amortization System (SAC). In current values, the total is R$ 4.1 billion, but analysts point out that the compensation may be subject to taxation, a matter still to be defined by the Federal Revenue Service. Citi analysts Antonio Junqueira and Guilherme Bosso estimate that, in the worst case scenario, the tax cost would reach R$500 million, reducing the value of the compensation to R$3.6 billion.