Sabesp Plunges as Dam Levels Fall to Record Amid Drought

Cia. de Saneamento Basico do Estado de Sao Paulo fell the most in five months after the utility said it will cut bills for customers who save water amid a drought that’s draining dams to a record low.

Sabesp, as Brazil’s biggest water utility is known, is offering business and residential clients in the greater Sao Paulo area a 30 percent discount through August if they cut their monthly usage 20 percent below their average between February 2013 and January 2014, the Sao Paulo-based company said in a statement on its website.

A dry spell in parts of Brazil is also hurting coffee and sugar crops and sending electricity prices to a record high as hydropower plants struggle with low reservoirs. The drought will persist until Feb. 20 and rains expected in late February and March won’t be enough to refill reservoirs before the annual dry season, Celso Oliveira, a meteorologist at weather forecaster Somar, said in a telephone interview.

“Investors are concerned about the impact that the discount and the rationing may have over the company’s revenue,” Sandro Fernandes, an analyst at the brokerage firm Geraldo Correa, said by phone from Belo Horizonte, Brazil. “If reservoir levels fall further, Sabesp will just run out of the product it sells.”

Shares fell 4.1 percent to 21.35 reais at 1:56 p.m. in Sao Paulo, poised for the biggest decline on a closing basis since Aug. 2. The stock has declined 19 percent this year.

Sabesp’s net revenue may be 360 million reais ($148.3 million) lower than the previously estimated 9.57 billion reais because of the discount for clients, according to a research note from Goldman Sachs Group Inc.

Sabesp didn’t immediately respond to an e-mail and phone call seeking comment.

The water utility said it announced the measures after the region’s lowest rainfall in the past two months since measurements began in 1930. Sabesp’s Cantareira water system, which supplies water to almost 10 million people, is at a “critical level,” according to the statement. The system is at 21.9 percent of capacity, its lowest level ever.