By Brazil Stock Guide – Sabesp (SBSP3) continues to evaluate Copasa (CSMG3), but remains cautious even after the definition of the Belo Horizonte contract — a key overhang in the process. The company is adopting a disciplined approach to expansion.
At a Bradesco BBI event in São Paulo, CEO Carlos Piani said any potential move depends first on delivering operational and investment targets in São Paulo, as well as meeting strict return thresholds.
While the resolution of Belo Horizonte reduces uncertainty, Piani signaled that the broader regulatory structure in Minas Gerais remains less consolidated. Unlike São Paulo — where 371 municipalities were unified under a single framework — Copasa still operates across more than 600 municipalities, with no equivalent contractual consolidation in place.
This creates a key risk: the potential need to replicate the Belo Horizonte model across other cities, with no guarantee of alignment. Part of this process may even happen ex post, increasing execution uncertainty.
The economic equation is also under scrutiny. Piani noted that Copasa has been one of the best-performing utility stocks in Brazil over the past two years, suggesting that much of the privatization upside may already be priced in.
As a result, the implied internal rate of return (IRR) may not be compelling enough relative to other opportunities — a critical factor as Sabesp ramps up capex and tightens capital allocation.
Another missing piece is the structure of the sale itself. Key details — including how the offering will be executed in the market — are still undefined, limiting visibility for potential bidders.
The company also reinforced its selective approach: it executes only 2% to 3% of the opportunities it evaluates. As a reference, Piani cited Equatorial Energia (EQTL3), which spent years without acquisitions before scaling through disciplined deals.
In the near term, the focus remains on São Paulo, where synergies are clearer and risk is lower. Beyond that, the strategy is unchanged: watch closely, but only act if price, structure and returns align.
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