October 10, 2018 / 2:45 PM / 2 years ago

UPDATE 1-Eletrobras shares drop on Bolsonaro's reluctance to sell power assets

(New throughout, adds background about former Chinese deals in Brazil’s power sector, updates share price)

By Carolina Mandl

SAO PAULO, Oct 10 (Reuters) - Shares of Brazil’s state power company tumbled 13 percent on Wednesday after presidential front runner Jair Bolsonaro said he was unwilling to sell generation assets, suggesting he is against the full privatization of Centrais Eletricas Brasileiras SA, also known as Eletrobras.

Shares of state oil company Petrobras also fell about 3 percent after Bolsonaro also expressed caution about full privatization of that company.

Eletrobras has assets in generation, transmission and distribution, and President Michel Temer’s current government had planned to privatize it in full.

Bolsonaro has lifted investors’ hopes by promising to cut government spending, lower taxes and privatize some state-controlled companies, and Eletrobras shares had soared on Monday after he cruised to a stronger-than-expected first-round election victory.

But the shares slid after TV station Bandeirantes aired an interview late on Tuesday in which he said selling more generation assets would leave Brazil “in the hands of China.”

These were just the latest in a series of comments by the far-right candidate warning about Chinese acquisitions in the electricity sector and elsewhere.

“For me, electrical power, we’re not going to touch,” he said, adding that he would bar political appointees at state companies.

Chinese investors have acquired a large chunk of power assets in Brazil over the last two years.

State Grid Corporation of China bought CPFL Energia SA for 26 billion reais ($6.9 billion), including a mandatory buyout for minority shareholders. China’s State Power Investment Corp paid $2.25 bln last year for a hydroelectric plant previously belonging to regional utility Cia Energetica de Minas Gerais.

Preferred shares in Eletrobras, the most liquid, were down almost 13 percent, at 23.32 reais, less than one hour after the opening at Sao Paulo stock exchange, leading an overall drop of nearly 2.0 percent in the benchmark Bovespa index.

In the interview, Bolsonaro also reiterated that he wants the Brazilian government to keep ownership of at least the core of state-controlled oil company Petroleo Brasileiro, again ruling out the possibility of privatizing the oil major.

“Refining assets could be privatized, but even privatizing, we’d have to see what kind of model,” he said.

Petrobras shares fell as much as 3.6 percent on Tuesday morning.

$1 = 3.7476 reais Reporting by Carolina Mandl Editing by Chizu Nomiyama and David Gregorio

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