Brazilian power firms offer transparency in exchange for financing

Dec 16, 2004 01:00 AM

Brazilian power companies are increasingly looking at adopting stronger accountability and transparent accounting procedures to increase their chances of tapping financial markets to fund the expansion of their operations, leading power company executives said at a seminar.
The main strategy is to sell shares, both at home and abroad, and move up the corporate governance scale.

Local power group CPFL has just joined the new market on Brazil's stock exchange Bovespa, the highest corporate governance level, in which there are only three other companies and for which it has to convert all its stock into voting shares and free-float 25 % of its capital in the near future.
"The power sector is a capital intensive, long-term industry that needs compatible financing," CPFL CEO Wilson Ferreira told the seminar.

Another company that has recently increased its accountability to investors has been AES unit Eletropaulo, which joined Bovespa's Level 2.
"The movement goes in the direction of having the capital markets as a partner," said Eletropaulo CEO Eduardo Bernini at the same seminar.

The adherence of Eletropaulo to Bovespa Level 2 came after renegotiating some $ 2 bn in debts with national development bank BNDES and other creditors. Another company that is also thinking of issuing shares is Neoenergia, a holding controlled by Spain's Iberdrola that has generation, distribution and trading interests.
"It's a long road and we are still preparing the company. Next year we'll be converting our accounts to US Gaap," Neoenergia CEO Marcelo Correa said.

Light, the Brazilian unit of France's EdF, is also preparing to join Bovespa's new market and Minas Gerais power company Cemig has shares trading at Bovespa's Level 1, the first level of corporate governance. The companies are seeking to reduce their reliance on BNDES for long-term financing, since competition for loans is tough and BNDES asks for strong guarantees in exchange for below-market rate, long-term financing.
"We need to beable to have access to other financing, but now only BNDES can offer 12-year financing," Correa said.

Among possible sources for financing are the sale of domestic debentures guaranteed by long-term receivables, the receivables funds themselves and loans from multilateral organisms such as the Inter-American Development bank and the World Bank. But companies need to speed up the implementation of transparency processes to take advantage of current positive investor sentiment towards Brazil.
"We are in a small window of opportunity during which the country is facing declining risk premiums on its sovereign debt and the outlook is positive because of economic stability," Ferreira said.

As much as CPFL, Eletropaulo and Neoenergia are all trying to find alternatives to BNDES financing, they are also seeking to tap into BNDES's 3 bn-real (just over $ 1 bn) bailout program, for which one of the main conditions is a higher standard of corporate governance. BNDES determined that the loan would be at the most 50 % of a company's short-term debt if the companies concerned restructured their debts and took steps to issue shares.
BNDES is said to be close to approving loans to all three: CPFL is applying for 200 mm reais, Eletropaulo wants 770 mm reais and Neoenergia is seeking some 900 mm reais.

The bailout plan is the last of several programs that the federal government offered distributors to recover from the 2001-2002 rationing, which took them to the brink of insolvency. Because of these programs, a recovering economy and the projection of a 5 % annual increase in power consumption, power distributors are looking forward to improvements because of rising revenue and a stable debt, the financial director of power distributors' association Abradee, Livia Brandao, said at the seminar.
"The sector starts to go back to historic levels of profitability, now they have to find a way to tap markets and meet financing needs," she said. Brazilian distributors plan to invest some 6 bn reais in 2005, most of which is earmarked to comply with concession obligations with the government such as expansion of power supply and meeting service quality targets.

Source: Business News Americas
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