The privatization of Copasa has a legitimate investment case: bringing in private capital, accelerating investment and improving the efficiency of a utility that is essential to Brazil’s second-most populous state. But the final stretch of the offering also raises an uncomfortable question: does this model maximize value for the state and the public, or does it first create a rare opportunity for well-allocated investors?
The question starts with the spread. Equatorial paid R$49.03 per share to become Copasa’s reference investor. On Monday, Copasa shares closed at R$57.19. That is a gap of R$8.16 per share, or about 16.6% over the transaction price.
In a public offering with demand approaching R$25 billion and an estimated size of about R$3 billion, that discount helps explain the rush for the shares. Investors are placing orders far larger than what they expect to receive because, in a heavily oversubscribed deal, even a small allocation may be enough to capture part of the upside.
There is a counterpoint: Equatorial will not be able to simply buy cheap and sell quickly. The lock-up reduces the reading of pure arbitrage and helps justify part of the discount. But it does not eliminate the central question: did the state properly capture the value created by the privatization?
This is not an argument against privatization. In sanitation, private capital can make economic and social sense. Copasa serves almost 12 million customers across 693 municipalities, and Minas Gerais needs significant investment to meet universal water and sewage access targets.
The point is different. If privatization creates value before any operational improvement has actually been delivered, who should capture that value first? The selling state, through a higher price? The company, through greater investment capacity? The population, through better services? Or the investors who manage to secure shares in a discounted offering?
When the reference investor’s price sits below the market price, the public offering carries an embedded arbitrage. Privatization stops being only a long-term thesis on sanitation and also becomes a short-term trade.
The comparison with Sabesp is inevitable. In 2024, the sale of shares in São Paulo’s water utility below the market price triggered criticism of the model: limited competition for the reference investor role, a meaningful discount and a valuable allocation for a limited group of investors.
Copasa is not Sabesp — at least not yet. The allocation has not been completed, there is no basis to claim favoritism, and the offering still depends on final pricing and placement conditions. But the ingredients look familiar: a regulated asset with a strong investment case, a strategic investor already selected, a stock trading above the reference price and an order book several times larger than the offering.
That combination deserves scrutiny. When demand far exceeds the size of the offering, the decision over who receives shares has direct economic value. The discussion is no longer only financial. It becomes a governance question about the privatization process itself.
There is a possible defense for the discount. The R$49.03 price may look low compared with the R$57.19 closing price, but it did not emerge in a vacuum. The first proposal came in below the minimum price the government was willing to accept — a threshold that had not initially been disclosed to the market. In that context, the final price can be read not only as a discount to attract a strategic investor, but also as the result of a negotiation that lifted the bid to a level the state considered acceptable.
The reference investor also plays a defensible role. It anchors the transaction, reduces execution risk and helps create a private governance structure for a company that will no longer be controlled by the government. In a politically sensitive deal, the state may have preferred to accept a price below the market screen, but above its own minimum threshold, to secure the privatization and avoid the risk of failure.
It is also true that the market price may already reflect expectations of future gains from privatization. The stock may be trading higher because investors are pricing in Equatorial’s arrival, more efficient management and a Copasa less exposed to the logic of state control.
Still, the question remains. If the government’s floor was not public and the stock closed at R$57.19, why does the structure of the offering create a meaningful window below that level? And if that window is unavoidable, what criteria ensure that allocation will be technical, transparent and aligned with the public interest?
Copasa may turn out to be a good privatization. It may attract capital, improve execution and help Minas Gerais expand sanitation services. But a good privatization is not measured only by a successful bookbuilding. It is also measured by the price achieved, the governance created and the way gains are distributed among the state, the company, investors and the population.
In the long run, the answer will come from Copasa’s ability to invest more and deliver better services. In the short run, however, the first calculation is financial. And that calculation already looks too attractive not to be captured first by Faria Lima, São Paulo’s financial district.