RIO DE JANEIRO - More than 60 Brazilian pension funds are negotiating their entry into bidding consortia to participate in the sale of the world's largest iron ore company.
The funds now are minority shareholders in the soon-to-be-privatized Vale do Rio Doce mining company.
The moves continue the privatization activities by big Brazilian funds. They have participated in most of Brazil's largest privatizations since 1991, when the country began selling state-owned companies.
But in this case, Brazilian funds are unlikely to make big outlays for a CVRD stake. That's because they already collectively hold 16% of the company's voting shares. Caixa de Previdencia dos Funcionarios do Banco do Brasil (Previ), the $17.2 billion fund of the state-controlled Banco do Brasil, alone has an 8% stake.
As a result, funds are being wooed to join consortia that will bid to buy CVRD. Experts say the funds' price of admission to a consortium will be minimal.
The government holds a 76% voting stake in CVRD. On April 29, the government will sell a controlling 40% to 45% bloc of CVRD voting shares to a consortium that will operate the company for a minimum price of between $2.6 billion and $2.9 billion. (Other phases of this privatization will entail a sale of 4.5% of voting shares to employees, and the sell-off of a 26.5% to 31.5% stake through international markets later this year.)
Three consortia forming to buy the 40% to 45% stake are: a combination of Votorantim, Brazil's largest industrial group and the Anglo American Corp. of South Africa Ltd. mining company; the Companhia Siderurgica Nacional (CSN), Brazil's biggest steel mill, and the Caemi group, Brazil's second-largest iron ore producer; and the U.S.-based Western Mining, the English/Australian RTZ-CRA mining company and Japanese trader Mitsui & Co. Ltd.
These bidding consortia want the pension funds as members because, along with providing capital, their 16% voting-share stake in CVRD will significantly increase a winning bidder's control over that company.
However, the pension funds have stipulated they would only participate in these consortia if they collectively can get one seat - just for pension funds - on CVRD's new board of directors. Currently, pension funds and all other minority shareholders together have one of eight CVRD board seats.
If pension funds don't participate in a bidding consortium, they risk remaining minority shareholders in CVRD.
"Previ and other state-owned-company pension funds with a stake in CVRD increasingly want to play an active role in the companies in which they have a significant minority stake and will likely agree to enter a bidding consortium in exchange for a board seat," said Edmo Chagas, a mining sector analyst with Banco Pactual, an investment bank in Rio de Janeiro.
"That seat would give those pension funds decision-making power over CVRD which they currently don't have."
Isabela Saboya, a mining sector analyst with Banco Icatu, also a Rio de Janeiro-based investment bank, agreed. "Pension funds currently being wooed by the various consortia planning to bid on CVRD will probably join one of them, in exchange for a seat on the CVRD board, because they want to have an inside say in a company in which they so far have had no voice," she said.
Previ officials declined to comment on any possible participation in a CVRD consortium.
Experts hold that if the pension funds don't participate in a consortium now, they still could secure a CVRD board seat by joining with the winning consortium after the CVRD sale. But this would leave the funds at a weaker bargaining position with the other members of the consortium .
"Pension funds that enter a consortium before the CVRD sale will have far greater bargaining power to do so on their own terms than if they wait to join a winning consortium whose control over CVRD has already being assured," said Ms. Saboya. "These pension funds don't again want to face the situation of being a big CVRD minority shareholder outside the company's controlling group."