(Bloomberg) -- Latin America’s largest water utility got the green light to be privatized next year, in a win for right-wing São Paulo Governor Tarcisio de Freitas, who has pledged to improve public services.
State legislators approved a public share sale for Cia. de Saneamento Basico do Estado de Sao Paulo, known as Sabesp, by a wide margin Wednesday. Shares fell as investors await details on next steps.
São Paulo, Brazil’s richest state, holds a 50.3% stake in the utility and is aiming to reduce it to between 15% and 30%, Natália Resende, state secretary of environment, infrastructure and logistics said Thursday in an interview. The exact slice government will keep will be decided between January and February, she added.
The proposal needed at least 48 votes to win approval in the 94 seat state legislature; 62 lawmakers voted in favor, one voted against and 31 were absent amid confusion between police and protesters.
São Paulo’s government is now discussing new concession agreements with municipalities served by Sabesp, which talks expected to be finalized in January. Public hearings and consultations on the privatization should take place the next month, followed by preparations for the share offering.
Freitas — an ally of former president Jair Bolsonaro — has resisted protests against his privatization plans. The utility intends to use the proceeds of the share offering to raise capital and expand service to parts of the population without access to sewage treatment or drinking water.
“The privatization will enable the acceleration of Sabesp’s goals to universalize the service and reduce tariffs charged to the population,” Resende said.
Read more: Sabesp Plans to Use Revenue from Share Sale to Cut Tariffs
The privatization bill includes the issuance of a so-called golden share for the state, which gives São Paulo’s government some veto rights.
There is a potential window for the equity offering starting in mid-May, after Sabesp publishes its first-quarter financial results, and running until mid-August, CEO Andre Salcedo told Bloomberg in September.
While the bill’s approval is “important and positive news” for Sabesp, XP Inc. analyst Vladimir Pinto said it was “widely expected” by the market. Shares fell as much as 1.9% on Thursday, to trade for as low as 67.66 reais.
Since the state of São Paulo unveiled the broad guidelines of a Sabesp privatization at the end of July, shares have climbed about 19%.
“It was an important indicator to show how committed the government is and that privatization is, so far, on schedule,” Pinto said in a report to investors.
(Updates with market reaction, analyst quotes and context starting in third graph)
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