Sabesp Drops as Bradesco Cuts to Hold on Water Rate Outlook

Cia. de Saneamento Basico do Estado de Sao Paulo, Brazil’s biggest water distributor, slumped after Banco Bradesco SA canceled its buy recommendation for the stock on prospects that rate increases will be delayed.

Shares of Sabesp, as Cia. de Saneamento is known, fell 5.3 percent to 87.79 reais at the close of trading in Sao Paulo, the steepest one-day drop since Nov. 21, after Bradesco cut its rating to the equivalent of hold. The company was the worst performer on the benchmark Bovespa index, which rose 0.7 percent.

Bradesco cited a decision by the state of Sao Paulo’s utilities regulator to postpone until August a decision on whether the company can raise rates to compensate for city fees. The state government, Sabesp’s controlling shareholder, requested the delay to allow for time to study the potential impact of higher rates, according to Bradesco’s note to clients today.

“It is uncomfortable for investors to see the state studying ways to reduce tariffs,” Vladimir Pinto, an analyst at Bradesco, wrote in the research note.

The regulator’s press office declined to comment.

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