By Jeffrey T. Lewis and Paulo Trevisani 

SÃO PAULO -- Brazil's Supreme Court voted to allow the government to sell subsidiaries of state companies without congressional approval, making it easier for President Jair Bolsonaro's administration to raise money, cut debt and attract private investment as the economy struggles.

The decision Thursday evening also allows the country's largest state enterprise, oil major Petróleo Brasileiro SA, or Petrobras, to continue its sale of noncore assets.

"Petrobras will go ahead with its disinvestments, which are fundamental to reduce debt and generate value," the company said after the ruling. Petrobras declined to say how much it plans to raise. Market estimates point to more than $20 billion.

Potential buyers can now be confident Petrobras's asset sale program will continue without interference from Congress, said Pedro Paulo Silveira, an economist at the Nova Futura brokerage in São Paulo.

"The decision removes a big question mark that was hanging over the process," he said. "Congress could have used asset sales as a bargaining chip, and potential buyers wouldn't like that at all."

Following the court's decision, one of its members reversed an injunction he issued in May barring the sale of Petrobras' natural-gas pipeline operator Transportadora Associada de Gás SA for almost $9 billion. That sale can now be concluded, Petrobras said.

With the decision, the Bolsonaro administration will now be able to carry out its plan to sell as many as 100 businesses more quickly than would have been possible if it needed to go through the country's splintered Congress. The cash-strapped government aims to raise $20 billion through asset sales this year apart from the sale of Petrobras' assets.

Getting congressional approval "would have added months or even years to a privatization process, especially considering that this administration lacks an organized base of support" in Congress, said Leonardo Barreto, a political consultant in Brasília.

Dozens of parties are represented in Brazil's Congress and the administration has had a difficult time getting legislation approved because Mr. Bolsonaro's party doesn't have a majority in either house.

The Brazilian government owns all or part of more than 130 companies. In addition to Petrobras are lenders Banco do Brasil SA and Caixa Econômica Federal, news agency EBC and South America's biggest electric company, Centrais Eletricas Brasileiras SA, or Eletrobras.

A week after Mr. Bolsonaro was sworn in on Jan. 1, the new infrastructure minister, Tarcisio Gomes de Freitas, said the government planned to sell about 100 state-controlled companies, though so far the administration hasn't announced which are on the block. The government has said it would hold on to the stake in Petrobras and keep the two big banks as well.

"The majority of the businesses the government plans to sell aren't parent companies, they're subsidiaries," said Solange Chachamovitz, chief economist at ARX Investimentos. "The decision removes considerable legal uncertainty and clears the way for the economy to become more productive."

Thursday's decision was based on an article in the 1988 constitution that says state companies can only be created when needed for national security or for "relevant collective interest," and with congressional approval. The justices inferred that selling those same firms must require lawmakers' vetting, but that selling subsidiaries doesn't.

The ruling refers to injunctions on a broader case questioning privatizations. The court is likely to revisit the issue when it tackles the broader case. But that could take years to happen and, meanwhile, Thursday's decision stands, according to a Supreme Court spokeswoman.

The door remains open for allegations that privatizing controlling companies like Petrobras, Banco do Brasil and CEF wouldn't need lawmakers' blessing, said Marcio Holland, an economist from Getulio Vargas Foundation who has researched Brazil's state enterprises.

"The 1988 constitution establishes state participation in the economy as the exception, not the rule," he said. "Because these companies were created before the constitution, it can be argued that their privatization wouldn't require congressional approval."

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

 

(END) Dow Jones Newswires

June 07, 2019 11:17 ET (15:17 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
PETROBRAS PN (BOV:PETR4)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more PETROBRAS PN Charts.
PETROBRAS PN (BOV:PETR4)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more PETROBRAS PN Charts.