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Exclusive: Brazil may intervene in debt-laden Celpa
March 1, 2012 / 12:10 AM / 6 years ago

Exclusive: Brazil may intervene in debt-laden Celpa

BRASILIA (Reuters) - Brazil’s government is considering intervening in debt-ridden electricity distributor Celpa, a unit of Grupo Rede Energia (REDE3.SA), two senior government sources told Reuters on Wednesday, suggesting that the company’s financial woes will probably worsen.

A federal intervention in Celpa, which filed for bankruptcy protection on Tuesday, is likely to be more effective than a bailout engineered by state-controlled power holding company Eletrobras (ELET6.SA), one of the sources said on condition of anonymity. Celpa is the power distributor in the northern state of Pará.

“Celpa is a market company, therefore a market solution to this problem must be found,” the source said.

The other source said another solution to Celpa’s problems, which range from a cash crunch to a potential default on 2 billion reais ($1.17 billion) of debt, may be revoking its license. A government attorney known in Brazil as AGU is analyzing such option following Celpa’s request for protection.

Aneel, the electricity industry regulator, will have to decide whether the situation of Celpa merits a federal government-engineered intervention, the first source noted. Such move could be similar to the intervention of power distribution company Cemar, which serves the northern state of Maranhão, in August 2002.

Bondholders told Reuters that neither option give a clear message to creditors who will honor obligations in the event of a default. In addition, the fact that an intervention is under analysis also suggests that Grupo Rede, which controls about 61 percent of Celpa, is unlikely to find a buyer soon.

In recent weeks, efforts by Grupo Rede’s Chairman and largest shareholder Jorge Queiroz Jr to sell part or all of its 54 percent stake in the company have suffered serious setbacks. The Celpa’s request for judicial protection may hurt Grupo Rede by triggering cross-default provisions on the latter’s $497 million of outstanding perpetual bond.

Grupo Rede’s liabilities almost tripled to 6 billion reais ($3.4 billion) over the past five years. The company posted a net loss of 820.6 million in the first three quarters of 2011, compared with 806 million reais in the year-ago period.

Prices on Rede’s 11.125 percent perpetual bond recovered from a slump on Tuesday, closing at between 55 cents to 58 cents on the dollar on Wednesday.

The price on Celpa’s $250 million of 10.5 percent unsecured debt rose on Wednesday to a range between 59 cents to 61 cents on the dollar, compared with 50 cents to 60 cents on Tuesday.

Grupo Rede, which is also a guarantor of some Celpa loans, has to pay about $14 million in interest for its perpetual debt in April, while Celpa faces a $13 million coupon payment early in June.

The media office of regulator Aneel, which is based in Brasilia, said the Celpa’s filing gives the company 60 days to present a recovery plan to courts. Should the plan fails to gain approval, Aneel may take steps including annulling Celpa’s concession.


Cemar, which was privatized in 2000, underwent intervention two years later after a tumble in the currency and operating shortcomings weakened its financial position. The company, which was sold in 2004 to a group of investors led by buyout firm GP Investments GPIV11.SA, is now controlled by Equatorial Energia.

Moody’s Investors Service lowered on Wednesday Grupo Rede’s debt ratings to Caa3, and said it may downgrade them further. Fitch Ratings, a fellow credit ratings company, also downgraded the ratings of Grupo Rede and Celpa after the latter’s filing for bankruptcy protection.

The woes facing Grupo Rede, including rampant debt and slowing revenue growth, could cause “economic and social malaise” that justify a rescue plan, José da Costa Carvalho Neto, the chief executive of state-controlled power holding company Eletrobras told Reuters on Tuesday.

Queiroz’s stake is valued at 1.1 billion reais by sources and analysts. Since both State Grid of China STGRD.UL and U.S. giant AES Corp (AES.N) gave up on Grupo Rede, speculation had mounted that Eletrobras and rival CPFL Energia (CPFE3.SA) could buy Queiroz out.

Eletrobras, which owns 34 percent of Celpa and is a major creditor of the unit, could bail out the company if the federal government orders so, Carvalho Neto said. Shares of Eletrobras fell on Wednesday, as analysts and investors said the move would hurt the holding company’s finances.

“Any move to rescue Celpa or Rede would be negative, in our view,” Barclays Capital analysts led by Francisco Navarrete said in a note. “Even if the transaction does not destroy value for Eletrobras, it does increase risk by potentially adding power distribution assets, which Eletrobras has been unable to turn around.”

Celpa had revenue equivalent to 9 percent of Eletrobras annual sales last year. Carvalho Neto denied on Tuesday that Eletrobras had interest in buying all of part of Grupo Rede’s assets.

The federal government has tasked Eletrobras with executing a plan to boost investment and foster competition to lower electricity rates across Brazil.

A federal government-led purchase of electricity distribution assets, however, may not guarantee a solution to the industry’s problems, which range from regulatory noise to slowing profit growth and mounting competition, according to Rafael Andreatta, an analyst with São Paulo-based brokerage Planner Corretora.

Reporting by Leonardo Goy; Writing and additional reporting by Guillermo Parra-Bernal; Editing by Gerald E. McCormick

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