Cemig Drops on Concern Regulator to Curb Profit: Sao Paulo Mover

Brazilian utility companies led losses in Sao Paulo after the country’s electricity regulator lowered metrics that may reduce tariffs.

Cia. Energetica de Minas Gerais plunged 14 percent, the most since December, to 22.20 reais at the close of trading in Sao Paulo. Light SA (LIGT3) slumped 6.2 percent to 19.05 reais, the most since April 2011, while Centrais Eletricas Brasileiras SA (ELET6) fell 4.3 percent to 11.48 reais. The benchmark Bovespa index slid 0.6 percent.

Brazil’s electricity regulator Aneel cut the preliminary asset valuation used to estimate rate reviews for Cemig, as Brazil’s second-biggest electricity company by market value is known, according to an official for the Brasilia-based regulator, who can’t be named because of internal policy. The official couldn’t immediately provide details on the cut or timing.

“When something like this happens, it affects shares of every company,” Pedro Galdi, an analyst with SLW Corretora, said in a telephone interview from Sao Paulo.

Cemig’s guidance published in May already mentioned the effects the rate changes could have in the company, Luiz Fernando Rolla, the Cemig’s chief financial officer, said in a teleconference today.

“We said several times there would be a reduction with Aneel’s methodology; we don’t think the result of this rate revision should be surprising for the market,” Rolla said. “We are discussing it with Aneel, there are several steps to be taken until the end of the process.”

Rousseff’s Reduction

The latest potential reduction comes after President Dilma Rousseff cut electricity rates by as much as 32 percent in November in a bid to boost economic growth.

Banco Bradesco SA (BBDC4)’s brokerage unit today cut Cemig’s rating to the equivalent of hold from outperform, saying the lower valuation would reduce earnings before interest, taxes, depreciation and amortization, or Ebitda by 247 million reais ($124 million) a year from previous forecasts.

“Although Cemig will appeal to change these figures, we believe, given the recent track record in similar cases, that the chances for a meaningful change are small,” analyst Vladimir Pinto said in a research note to clients.

To contact the reporters on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net; Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; James Attwood at jattwood3@bloomberg.net