Cemig to Invest $621 Million in Brazil Developer Renova

Cia. Energetica de Minas Gerais, Brazil’s second-biggest power utility, agreed to invest 1.41 billion reais ($621 million) in the renewable-energy developer Renova Energia SA (RNEW11) to boost its exposure to wind power.

Renova Energia will issue new voting shares that the utility agreed to buy for 16.23 reais each, Cemig, as the company is known, said yesterday in a statement.

Cemig and other Brazilian utilities CPFL Energia SA (CPFE3) and Tractebel Energia SA (TBLE3) are seeking to focus more on wind power, which complements Brazil’s hydroelectric dams, Vicente Koki, an analyst at Portuguese lender Caixa Geral de Depositos SA’s Sao Paulo office, said today in a telephone interview.

“Wind farms are an excellent way of reinforcing the system,” he said. “During the dry season, when hydro dams run low, the winds here are at their strongest.” Hydropower dams generate about 70 percent of Brazil’s energy and low reservoirs at the end of last year sparked concerns of an energy shortage.

Cemig will be part of a controlling group, along with Light Energia SA and RR Participacoes, that will own at least 51 percent of Renova Energia once the deal is complete, according to the statement. Light SA (LIGT3) agreed to buy 26.2 percent of the shares in Renova Energia in July 2011.

Renova Energia’s units, which each consist of one common share and two preferred shares, rose for the first time in three days, advancing 5.2 percent to 42.46 reais at the close in Sao Paulo. Cemig declined 0.6 percent to 20.47 reais.

New Company

The purchase price, which now amounts to 50.71 reais a unit, represents an “unjustified” premium of 25.6 percent over yesterday’s closing price, Citigroup Inc. (C) said today in a report. The premium is 60 percent over what Citibank values the company.

Cemig and Renova Energia will also form a new company called Chipley SP Participacoes SA. It will inherit a stake Cemig agreed in June to take in the hydroelectric dam developer Brasil PCH SA from state-run oil company Petroleo Brasileiro SA, according to the statement.

Cemig was the first Brazilian utility to attach a wind farm to the grid in 1994, the company said on its website.

The company may be seeking to develop new generation assets after it rejected an offer by the government to cut rates in exchange for a renewal to its concessions to operate hydroelectric plants, Koki said. Cemig said on Dec. 4 it wouldn’t renew contracts to operate 18 hydro plants because the terms were unfavorable.

“The company needs to invest to maintain cash flows,” he said.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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