ADRs in Focus: Sabesp says focus remains water

The chief executive of Sabesp said Wednesday that his company does not intend to shift its focus away from the water industry if it buys a power company.

The Brazilian water and sewage company is interested in Empresa Metropolitana de Aguas e Energia SA, also known as EMAE, to help offset its own power costs and to move its business forward, Genser Oliveira said at Brean, Murray, Carret & Co.'s Natural Resources & Infrastructure Conference in New York.

Sabesp is also known as Companhia de Saneamento Basico do Estado de Sao Paulo.

The company said last month that it has entered into a confidentiality agreement with EMAE to study its valuation, and may eventually buy its assets and acquire its capital.

Oliveira declined to comment on how much EMAE would comprise of the company's asset base if and when it is absorbed.

"The main objective to acquiring EMAE is to reduce costs," improve electricity efficiency and margins, Chief Financial Officer Rui Affonso said at the conference.

Calling the proposed deal a "strategic decision," Affonso said the buyout has been under consideration for several years.

Brean, Murray, Carret & Co. analyst Michael Gaugler currently rates Sabesp shares "Hold" due in part to uncertainty on the EMAE deal.

EMAE's assets have reported "significant" losses over the last several quarters, and integrating those losses might pull Sabesp's own profitability down, Gaugler said.

The state government of Sao Paulo, Brazil, currently owns a 50.3 percent stake in Sabesp, according to company data.

The rest of Sabesp is publicly traded, with 26.4 percent of shares listed on the Novo Mercado stock exchange and 23.3 percent of shares listed on the New York Stock Exchange.

Shares of the company trading in New York fell 36 cents to $52.39 in afternoon trading Wednesday.

The Bank of New York Emerging Markets ADR Index _ which includes shares of companies based in China, Mexico, Brazil and more _ lost 4.20 points to 353.25. ADR stands for American Depositary Receipt, which is a security designed to allow U.S. investors to trade shares of companies based overseas.

The Bank of New York Composite ADR Index slipped 3.52 points, or 2 percent, to 172.82 as the U.S. markets fell in the afternoon session.