September 13, 2012 / 10:52 PM / 5 years ago

TEXT-S&P Keeps Five Brazil And One Colomb Utilities Rts Unchanged

(The following was released by the rating agency)

SAO PAULO (Standard & Poor's) Sept. 13, 2012--Standard & Poor's Ratings Services said today that its ratings on the following utilities remain unchanged following the Brazilian government's announcement to reduce electricity tariffs to final consumers by about 20%:

-- Eletrobras-Centrais Eletricas Brasileiras S.A.;

-- Companhia Energetica de Minas Gerais S.A.;

-- Cemig Geracao e Transmissao S.A.;

-- Cemig Distribuicao S.A.;

-- CESP-Companhia Energetica de Sao Paulo; and

-- Interconexion Electrica S.A. E.S.P. (ISA).

About 65% of the tariff reduction would come from a price reduction of the energy sold or transmitted in certain concessions for power generation and transmission that end between 2015 and 2017. The remainder of the tariff reduction would come from the elimination and/or reduction of certain sector charges and taxes.

The companies that agree to renew the concessions under the new terms will suffer a significant tariff reduction starting in 2013. Those companies that don't agree should receive compensation after the termination of their concessions for the nondepreciated value of their asset base, and the concessions will return to the government.

Although the price reduction for power generators and tariff reductions for transmission companies for each of the concessions have yet to be defined, we don't expect strong impact on the ratings mainly due to the companies' good credit metrics for their rating categories, adequate liquidity, good debt structure, and access to the financials markets. However, we will continue to closely monitor the impact on the companies' financial risk profile and the sector's regulatory risk.

Eletrobras is the most vulnerable to these new measures, as it holds more than 60% of the concessions for power generation and transmission that end between 2015 and 2017. However, even if the company's stand-alone credit profile suffers from these measures, an almost certain likelihood of extraordinary support from the government supports the credit rating. We will closely monitor Companhia Energetica de Sao Paulo's decisions regarding the renewals of its concessions and the potential impact on its financial risk profile. We view Companhia Energetica de Minas Gerais as an integrated company with a more diversified cash flow to manage a potential significant tariff reduction. Our rating on ISA, which is the controlling shareholder of CTEEP - Companhia de Transmissao de Energia Eletrica Paulista, incorporates the expiration of its concessions by 2015, and our base-case scenario still holds in the current scenario. However, ISA's future investment in Brazil could be reassessed under these new terms, potentially harming the company's growth strategy.


Eletrobras-Centrais Eletricas Brasileiras S.A.

Corporate credit rating BBB/Stable/--

Companhia Energetica de Minas Gerais S.A.

Corporate credit rating BB/Stable/--

Cemig Geracao e Transmissao S.A.

Corporate credit rating BB/Stable/--

Cemig Distribuicao S.A.

Corporate credit rating BB/Stable/--

Companhia Energetica de Sao Paulo

Corporate credit rating BB/Stable/--

Interconexion Electrica S.A. E.S.P. (ISA)

Corporate credit rating BBB/Stable/--

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