March 12, 2017 / 2:39 PM / 10 months ago

Exclusive: Brazil's Cemig seeks partner, IPO for two main units

SAO PAULO (Reuters) - Cia Energética de Minas Gerais SA plans to sell a majority stake in two units and list them in São Paulo and New York in coming months, a move that could help Brazil’s No. 3 power utility reduce debt and curb state interference, a person with direct knowledge of the plan said on Sunday.

The Brazilian state of Minas Gerais, which owns 17 percent of the utility’s capital and controls its management, will announce the plan within the next month once legal and operational requirements have been met, said the person, who asked for anonymity to speak freely about the plan.

The subsidiaries, power generation and transmission company Cemig GT and power distribution firm Cemig D, are fully owned by Cemig, as the utility is commonly known.

Talks with potential partners, which include an undisclosed Brazilian investment bank, a North American investment firm and an Asian power utility, are at an advanced stage, the person said.

Once Minas Gerais state clinches a deal with partners for Cemig GT and Cemig D, both companies will be capitalized and then their initial public offering will be launched, said the person.

Cemig is considering hiring two domestic investment banks and a foreign one to underwrite the IPO, from which the company expects to raise about 4 billion reais ($1.3 billion), the person said.

Proceeds from the IPO will be used to reduce Cemig’s 13.7 billion-real debt, the person said. The utility’s debt tripled in the past five years in the wake of a wave of takeovers and a government decision to renegotiate power contracts.

The media office of Cemig, which is based in the city of Belo Horizonte, declined to comment. The office of Minas Gerais Governor Fernando Pimental also declined to comment.


Such a deal structure allows Pimentel to meet state rules banning an outright sale to investors while taking a large step toward fixing a fiscal crisis afflicting Brazil’s third most-populous state.

Selling both units is a more palatable move than a Cemig privatization, which would require an amendment to the state’s constitution.

Bernardo Salomão, a longtime Cemig engineer who became the utility’s chief executive officer late last year, told members of Cemig’s workers union about plans to sell control of several power dams last week.

Union leaders have vowed to oppose any attempt to sell Cemig or key core assets to private investors.

Without “implementing actions to help Cemig unlock value, it will be impossible to the company reduce part of the 1.2 billion reais it spends in debt servicing annually,” the person said.

Pimentel’s decision to sell control of Cemig GT and Cemig D adds to a flurry of merger and acquisition deals in Brazil’s electricity industry over the past year. The largest was State Grid Corp of China’s $21 billion purchase of CPFL Energia SA last year.

Cemig has also been active on that front, disposing of assets it does consider essential and finding partners for some debt-laden subsidiaries like renewable power firm Renova Energia SA.

Reuters reported on March 1 that a unit of Brookfield Asset Management is near buying a 30 percent stake in Renova.

Cemig D lost a net 34 million reais in the third quarter, on revenue of about 2.8 billion reais. Cemig GT earned profit of 224 million reais in the third quarter - the latest data available - on revenue of about 1.75 billion reais.

($1 = 3.1380 reais)

Editing by Nick Zieminski

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