Brazil's Eletrobras privatization lures new investors including Singapore, Canada funds

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A person stands next to the logo of Brazil's power company Eletrobras in Rio de Janeiro, Brazil January 3, 2019. REUTERS/Pilar Olivares

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SAO PAULO/RIO DE JANEIRO, June 8 (Reuters) - Brazilian state power company Eletrobras (ELET6.SA) is expected to raise around $6 billion through a share offering with infrastructure funds from Canada and Singapore among the bidders, according to two people with the knowledge of the matter.

Canada Pension Plan Investment Board (CPPIB) and Singapore's GIC, seldom seen in follow-on offerings, are poised to become relevant shareholders in Centrais Eletricas Brasileiras SA, as Eletrobras is formally known, after the offer, the sources said.

The share offering that will result in privatization of Eletrobras, Latin America's largest utility, with the state's stake shrinking to around 45%, is set to be priced on Thursday. It will be one of the largest share offerings in the world this year, behind the $10.7 billion IPO of South Korea's LG Energy Solution Ltd and close to the $6.08 billion raised by Dubai Electricity and Water Authority's IPO.

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GIC will be one of the anchors in the share offering, alongside traditional equity investors such as Brazilian asset managers SPX Capital and Truxt, the sources said.

GIC and CPPIB are expected to join forces with asset manager 3G Radar, now Eletrobras' largest private shareholder with an 11% stake, to design a post-privatization strategy, the sources said.

GIC, CPPIB and 3G Radar's associated company, 3G Capital, are investors that usually acquire control of companies. One of the sources said 3G Radar, which has been an Eletrobras shareholder for more than five years, has been sounding out executives to join Eletrobras after the privatization.

Part of 3G Radar's 1.5 billion reais ($306 mln) in assets under management comes from partners at 3G Capital, the controlling shareholders in brewer AB Inbev (ABI.BR) and food maker Kraft Heinz (KHC.O). 3G Capital executive Alex Behring has a seat on 3G Radar's board.

CPPIB declined to comment on "market speculation".

3G Radar, 3G Capital and GIC did not reply to requests for comment.

Other big Brazilian investors considered the offering but have decided against it, including holding company Itausa SA (ITSA4.SA) and industrial conglomerate Votorantim SA, according to one of the sources. Votorantim declined to comment on "speculation". Itausa did not immediately respond to requests for comment.

Investors have had to weigh threats to roll back Eletrobras privatisation from advisers of Brazil's leading presidential candidate in an October election, leftist former President Luiz Inacio Lula da Silva. read more

As investors discuss the future Eletrobras strategy, they need to consider the privatization governance framework. The new bylaws include a poison pill mandating a costly tender offer if an investor or investor group holds more than 50% of voting capital.

There is wide consensus among the largest investors and analysts, though, that unifying structures of Eletrobras' largest subsidiaries would bring almost immediate and relevant cost savings, but other details of the future strategy are not yet defined.

Demand seems strong for Thursday's share offering, which will be managed by the investment banking units of BTG Pactual, Bank of America, Goldman Sachs, Itau Unibanco Holding SA, XP Investimentos, Banco Bradesco, Caixa Economica Federal, Citigroup, Credit Suisse, JPMorgan, Morgan Stanley and Safra.

Two other people with knowledge of the matter said the demand for the offering has been strong and already reached 50 billion reais ($10.3 billion).

One of the sources said demand from retail investors using money from their government-managed severance funds known as FGTS is also above estimates. Retail investors need to signal interest through Wednesday, and institutional investors by Thursday.

($1 = 4.9044 reais)

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Reporting by Tatiana Bautzer; Editing by Christian Plumb and Tomasz Janowski

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