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Cemig Slumps on Outlook Brazil Rules Will Cut Profit

Cia. Energetica de Minas Gerais, Brazil’s largest power company by market value, dropped the most in more than 14 years on concern government measures to cut electricity rates will hurt profit. Other utilities also fell.

Cemig, as the Belo Horizonte, Brazil-based power company is known, declined 20 percent to close at 25.29 reais in Sao Paulo, after falling as much as 23 percent, the biggest intraday drop since September 1998. Cia. Energetica de Sao Paulo, or Cesp, plummeted 28 percent, the most since it started trading in August 2006.

President Dilma Rousseff and Energy Minister Edison Lobao yesterday announced measures to force power utilities to cut rates by as much as 28 percent to stoke economic growth while taming inflation. The measures, announced at an event with industry leaders in Brasilia, include revised conditions for the renewal of license expiring between 2015 and 2017.

The event was “marked by the speechless, stupefied faces of sector specialists and company executives,” Banco Itau SA analysts led by Marcos Severine said in a note to clients. “We see relevant downside potential to our earnings” estimates, the analysts said.

Others utilities including Cia. de Transmissao de Energia Eletrica Paulista, or Cteep; Centrais Eletricas Brasileiras SA, or Eletrobras; and AES Tiete SA were also among shares leading losses on Brazil’s benchmark Bovespa index. Interconexion Electrica SA, Cteep’s parent, declined 4 percent in Bogota.

The government measures will boost the economy even while affecting Eletrobras’s earnings, Chief Executive Officer Jose da Costa Carvalho said on a conference call with analysts.

Cemig may seek to appeal in court the new concession renewals if talks with the government fail, Chief Financial Officer Luiz Rolla said on a separate call with analysts.

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