The financial market reacted optimistically on Thursday, January 29th, to the privatization model for Copasa (Companhia de Saneamento de Minas Gerais), announced the previous day by the Minas Gerais state government – which holds a 50.3% stake in the company.

Itaú BBA considered the model positive, reiterating its buy recommendation for the company's shares, a view shared by BTG Pactual . Other market analysts consulted by NeoFeed highlighted that, despite the slight drop in the share price at the start of trading – attributed not to disapproval of the proposed model, but to profit-taking by investors – some details, such as the state-owned company's sound financial health, reinforce the positive outlook for the auction, which should take place by April.

However, one detail was highlighted by analysts. By choosing to divest all of its Copasa shares and use the proceeds from the sale to pay down part of Minas Gerais' debt to the federal government, currently at R$ 177 billion, the Minas Gerais government will effectively forgo capital gains resulting from the appreciation of the company's shares under private management – an advantage obtained, for example, by the São Paulo government in the sale of Sabesp, when it maintained a shareholding in the new company.

Considered one of the giants of the sanitation sector in the country – along with Sabesp , Aegea, and Sanepar – Copasa covers 637 municipalities in Minas Gerais, serving approximately 12 million consumers, and has strategic relevance as it is considered one of the most efficient and attractive state-owned companies in the market. The company's shares appreciated by 16.15% in the month and 135.38% in the last 12 months.

Its privatization will occur through a secondary offering of shares. Under this model, the Minas Gerais state government will structure a public offering ( follow-on ) only with the shares it already owns. After the sale, the government reduces or eliminates its shareholding, thus completing the privatization.

Since the process will be via a secondary offering of the state-owned company's shares held by the Minas Gerais government, Copasa will not issue any new shares. Therefore, the company will not receive any funds directly from the operation – the money raised will go to the state government's coffers.

The transaction structure includes a 30% stake for a strategic investor, who may increase their stake by acquiring additional shares within the offering. The reference investor must meet predefined qualification criteria, including proven financial capacity and experience in the infrastructure sector, and a commitment to the goal of universal access.

Furthermore, the state government may retain a 5% stake if at least one strategic investor participates in the offering, or sell its entire stake if there is no strategic investor. Copasa's bylaws are expected to establish a 45% limit on voting rights for any shareholder or group of shareholders, regardless of their economic stake.

The model announced by the Minas Gerais state government also includes lock-in clauses. The strategic investor will be subject to a four-year lock-in period on the shares acquired in the base offering. Furthermore, 50% of the stake will remain locked until December 2033 or until the universalization goals are achieved, whichever comes first.

The privatization of Copasa was approved by the Legislative Assembly of Minas Gerais in December, with 53 votes in favor and 19 against. The session lasted more than 9 hours, marked by obstruction from the opposition and protests from employees. With the legislative phase concluded and the privatization model defined, the process moves on to a series of corporate, technical, and governance steps necessary to prepare for the formal launch of the Copasa privatization offer.

Secondary sale

Ilan Abertman, Equity Research analyst at Ativa Investimentos , notes that some details of the process are still unknown. However, he highlights as a favorable point the operational model through a secondary sale, in which only the State will sell its stake, without the issuance of new shares (primary offering).

“This structure is beneficial because it avoids dilution for current shareholders,” says Abertman, also citing the definition of the reference shareholder, as well as the percentage of shares that the State will sell, as relevant points, since they impact the control configuration.

According to him, the proposed model includes contractual constraints to align interests and guarantee long-term objectives, such as a 4-year lock-up period for the reference shareholder.

“This structure seeks to attract a strategic partner or consortium with a large size and know-how capable of carrying out the substantial investments needed until 2033,” he adds, referring to the deadline stipulated by the Sanitation Regulatory Framework for the universalization of services, guaranteeing 99% of the population with potable water and 90% with sewage collection and treatment. The company has good indicators: it has reached the water treatment target and already offers 85% sewage treatment.

Itaú BBA, in a report for clients coordinated by analyst Filipe Andrade, states that the model brings more visibility to the governance terms and structure of the transaction, representing another concrete step towards privatization.

The report, however, draws attention to three points that need to be monitored. For example, further clarification will be needed regarding the transaction structure, including the pricing mechanism, and discussions about the minimum price with the State Audit Court.

Another point to monitor is the progress in signing new concession contracts and extending existing contracts, with more details on the terms, obligations, and targets, particularly in the Belo Horizonte contract, which the bank believes is at a more advanced stage. Finally, the report mentions the need for approvals and authorizations necessary to complete the process, including obtaining debt exemptions.

“We reiterate our buy recommendation for Copasa shares,” reinforces the Itaú BBA report, which set a target price of R$ 55.90 – 8.8% higher than Wednesday's closing price. The bank notes that, although the shares already reflect a privatization scenario, some short-term triggers before privatization and upside risks to the investment thesis are still visible.

Future loss

Bernardo Viero, an analyst at Suno Research , states that the announced privatization model, which involves only the sale of existing shares by the Minas Gerais government, is positive from a revenue perspective.

But, on the other hand, by divesting all or a portion of its shares, the Minas Gerais government will not be fully exposed to the potential optimizations and efficiency gains that the company may unlock with a boost from the new private management.

“We observed this both in the case of Axia Energia ( formerly Eletrobras ) and in the case of Copel, where even relinquishing control, by maintaining significant stakes in the shares, both the Federal Government and the State of Paraná benefited from a substantial capital gain due to the appreciation of the shares as the companies' profitability increased,” says Viero.

This detail becomes relevant when noting that the company's market value, currently at R$ 19.47 billion, represents only 11% of the Minas Gerais state government's debt to the federal government.

In this respect, Copasa's operational size reinforces the possibility of lost future gains for the Minas Gerais government should it divest all of its shares in the company. The state-owned company currently holds 637 water concessions and 308 sewage concessions – placing Copasa among the companies with the largest territorial coverage in the country, serving more municipalities than Sabesp and Sanepar.

The data from the third quarter of 2025, the latest available balance sheet, confirms the attractiveness that the state-owned company should have in the future privatization auction. Copasa presented moderate revenue growth (+3.4%), stability in EBITDA (+0.2%) and a slight decrease in net profit (-2%). Although net debt grew by 17% compared to the same quarter of 2024, reaching R$ 6.06 billion, leverage is considered satisfactory – the net debt/EBITDA ratio is 2.1 times.

Given the size of Copasa's operation, few companies in the sanitation sector have a potential interest in acquiring the Minas Gerais state-owned company. Analysts mention Aegea , Iguá , and, with less chance, Águas do Brasil .

Among the financial groups, a prominent name mentioned is Equatorial Energia , with a history of transforming inefficient state-owned companies into profitable operations. Infrastructure funds and operators are also mentioned. The list includes CCR, Pátria, Vinci, and Brookfield, which could enter as strategic investors or significant minority shareholders.

"The auction is expected to have high demand, especially considering that we are currently in a more heated market compared to the period of a similar transaction at Sabesp," says Viero, from Suno.