Brazil Utilities Won’t Be Hurt by New Rule, Itau Says

Brazilian utility stocks likely won’t be hurt by a proposed adoption of international accounting rules, according to Itau Unibanco Holding SA.

Aneel, Brazil’s electricity regulator, plans to adopt international accounting standards that may prevent certain assets from being booked on utilities’ balance sheets, Valor Economico reported yesterday. Patricia Pinto, an Aneel spokeswoman in Brasilia, said in an interview today that the regulator is studying the new rules and hasn’t made a final decision about the implementation.

Utility companies in the MSCI Brazil Index slid 1.1 percent yesterday after the Valor report, the biggest decline among the 10 industry groups. The MSCI Brazil/Utilities Index rallied 4 percent today.

The accounting change “may reduce or increase the value of the fixed assets, but it will not impact free cash flows, thus causing the valuation of utility companies to remain unaffected,” Itau analyst Sergio Tamashiro wrote in an note dated yesterday. “If investors in today’s trading session were upset about the potential negative effects of changing accounting procedures, we recommend them to buy utility stocks.

Sao Paulo-based Tamashiro said there are “good buy opportunities” among utility companies, including Companhia Energetica de Sao Paulo. Brazil’s third-largest electricity- generation utility, known as Cesp, slid 5.4 percent yesterday and added 2.3 percent today.

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