Sabesp Rallies on Report Rate Increase Granted: Sao Paulo Mover

Cia. de Saneamento Basico do Estado de Sao Paulo, Brazil’s biggest water distributor, rallied the most in five years after a report that government officials will allow the company to increase rates.

Shares of Sabesp, as Cia. de Saneamento is known, rose 11 percent to 21.75 reais at the close of trading in Sao Paulo, the steepest one-day advance since October 2008. It was the best performer on the benchmark Ibovespa, which added 1.2 percent.

The water utility will be allowed to increase customer rates in line with inflation, O Estado de S. Paulo’s news agency reported yesterday after the market closed, citing an interview with Jose Anibal, the state energy secretary.

“Since the Brazilian government forced power companies to reduce rates, the Sao Paulo government canceled a subway fare raise and the Sao Paulo mayor suspended a bus fare raise following protests, there is so much uncertainty about rate increases for companies that provide public services,” Marcelo Varejao, an analyst at the brokerage firm Socopa, said in a phone interview from Sao Paulo. “The secretary’s comments are a relief for shares and investors.”

Anibal’s press office didn’t immediately respond to a call from Bloomberg News seeking comment. Sabesp’s press office declined to comment.

Increases Halted

President Dilma Rousseff, as part of an effort to slow inflation that peaked at 6.7 percent in June, has sought to cut power prices by pressing utilities to lower rates.

Brazil’s largest cities faced the biggest street protests in two decades in June after increases to public transportation fares. The state of Sao Paulo governor, Geraldo Alckmin, halted an increase to subway fares and city mayor Fernando Haddad canceled an increase for buses.

The state utilities regulator decided in July to postpone a decision on whether the company can raise rates because it is missing three directors and didn’t have a quorum for meetings. Arsesp plans to maintain the suspension until Sabesp fully explains its request for a rate increase, the utility said in a regulatory filing Sept. 2. Sabesp said in the filing that it will need three months to make all the needed changes to its proposal.

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