Brazilian Generator Cesp to Sell Bonds and Shares

Cia. Energetica de Sao Paulo, Brazil's third-biggest power generator, plans to sell 2 billion reais ($889 million) of local bonds, and sell receivables and new shares as a part of a plan to lower debt costs.

The Sao Paulo-based, state-controlled company plans to sell as much as 650 million reais worth of receivables and an undisclosed number of new voting and preferred shares in Brazil and in the U.S., Cesp said in a filing to the Brazilian stock regulator last night.

``Cesp could benefit from a virtuous cycle scenario of reduced leverage and reduced cost of debt,'' said Lilyanna Yang and Anderson Frey, equity analysts at JPMorgan Chase & Co. in a report today.

The plan would put help Cesp cut debt levels, created by construction delays of its Porto Primavera hydroelectric plant, that have restrained expansion. A reduction in Cesp's debt will probably boost the value of the shares even though the company is selling new stock, said Yang and Frey, who upgraded their rating on the stock to ``neutral'' from ``underweight.''

Cesp's shares rose 6 centavos, or 3 percent, to 20.9 reais on the Sao Paulo stock exchange. Its shares have jumped 59 percent this year compared with a 9.3 percent gain by the Bovespa benchmark stock index.

Cesp plans to sell a third of the new shares to Sao Paulo state, its controlling shareholder, which will fund the purchase with proceeds from the sale of power transmission company Cia. de Transmissao de Energia Eletrica Paulista on June 28.

Cesp may raise as much as 2.5 billion reais with the share sale, Yang and Frey said in their report. About 1 billion reais would come from the Sao Paulo state subscription alone, the report said.

In order to make the offering more attractive, Cesp will sell a new class of preferred share that gives investors rights to receive 100 percent of the value that will be paid to holders of voting shares in case the company is acquired, the filing said. The new class of shares will also be entitled to receive the same dividends as voting shares, the filing said.

To contact the reporter on this story: Romina Nicaretta at (55) rnicaretta@bloomberg.net

To contact the editor responsible for this story: Laura Zelenko in New York at lzelenko@bloomberg.net

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