By Carolina Mandl and Tatiana Bautzer
SAO PAULO (Reuters) - As Brazil's stock market hit record highs in January, Economy Minister Paulo Guedes said the country could raise up to 150 billion reais ($30 billion) with sales of state-owned companies through share offerings, mergers and acquisitions.
With the market down 40% from its peak as the coronavirus pandemic rattles Brazil and tips the global economy toward recession, the minister will have to slash his ambitions.
At least 50 billion reais in announced shares sales have already been postponed, and transactions waiting for regulatory approval have been halted.
Brazil's government, which has run six straight years of deficits, was counting on asset sales to limit its shortfall to 124 billion reais this year. On Tuesday, the government called for a state of emergency to loosen fiscal rules.
Planned asset sales via M&A have not yet been halted, but bankers expect them to become more difficult as volatility affects valuations across industries and potential buyers face challenges from the coronavirus pandemic and oil price war.
"It's impossible to proceed with share offerings at this level of volatility," said a senior banker working with potential buyers on some privatizations. "M&A deals are still going on, but many of them at a slower pace," he added.
In face of the turmoil, a source within the Economy Ministry said Brazil will not reach 150 billion reais target in asset sales, but did not have a new estimate.
In a statement to Reuters, the Economy Ministry said market volatility prevents valuation discussions and share offerings need to wait.
One of the largest deals this year, expected to raise at least $10 billion, is the sale of eight refineries by state-controlled oil company Petroleo Brasileiro SA (SA:PETR4).
The deadlines for preliminary offers have not yet slipped, but at least one potential bidder has been recalculating valuations. A person close to one of the bidders said the company was still interested, but needed to factor in the extreme volatility in energy markets.
Sales of oil exploration and production assets are likely to the most affected by the drop in oil prices, which has erased more than half the market value of Petrobras. In a statement to Reuters, Petrobras said it is "premature" to assess the impact of oil prices on the deals.
Petrobras has invited potential buyers for 11 divestitures this year, including deepwater oil field Papa-Terra, a joint venture with Chevron Corp (N:CVX) in the Campos Basin.
The government also expected to raise billions with the sale of a majority stake in Banco do Brasil's asset management unit.
Although that sale process is ongoing and large global asset managers delivered their bids two weeks ago, bidders hope to slow the process down amid the turbulence in financial markets, one source with knowledge of the matter said.
OFFERINGS SCRAPPED
While M&A remains uncertain, there is no doubt that several major divestments via share sales will have to wait.
That includes the privatization of power company Centrais Eletricas Brasileiras SA (SA:ELET6), or Eletrobras, which Guedes admitted this week now looks unlikely, striking 16 billion reais from the government's revenue forecast.
The other three major share offerings have been canceled due to market conditions, including the sale of public-sector stakes in meatpacker JBS SA (SA:JBSS3), insurance company Caixa Seguridade, which would have been the largest IPO of the year, and lender BV.
The only transaction completed so far was the sale of a 22 billion-real stake in oil company Petrobas owned by Brazil's development bank BNDES.
BNDES CEO Gustavo Montezano decided last week to interrupt the sales of its stock portfolio, which was worth almost 120 billion reais at markets peak.