Cemig Defies Prediction for Biggest BRIC Dividend Cut

Cia. Energetica de Minas Gerais vows to maintain dividends even as analysts predict Brazil’s pressure to cut rates will prompt the utility to lower payouts the most among the largest companies in top emerging markets.

Cemig, the South American country’s third-largest electric utility by market value, has “no plans whatsoever to reduce dividends,” Chief Financial Officer Luiz Fernando Rolla said in an interview yesterday. It is forecast to pay out 74 cents per share in 2013, 50 percent less than in 2012. That would be the biggest cut among the 200 largest publicly traded companies in Brazil, Russia, India and China, according to forecasts compiled by Bloomberg.

PetroChina Co. Ltd., the biggest company by market value in the so-called BRIC countries, is expected to increase its dividend by 10 percent, data compiled by Bloomberg show.

President Dilma Rousseff last month unveiled measures to force power utilities seeking concession renewals to cut rates by as much as 28 percent to stoke economic growth and boost the competitiveness of Brazilian manufacturers.

Cemig’s dividend in the short term “will probably remain unchanged, as the new rate rules probably won’t be in place until a couple of years from now,” Rodolfo Amstalden, an analyst at equity consulting firm Empiricus Research, said by phone from Sao Paulo. “The problem is that it all can change if the government decides to carry out a more drastic change. Things are too unclear right now.”

License Renewal

Shares of Cemig rose 0.5 percent to 24.84 reais at 2:52 p.m. in Sao Paulo after earlier jumping as much as 3.4 percent. The benchmark Bovespa index lost 1.5 percent.

Cemig this week said it wasn’t interested in seeking the renewal of three power-generation licenses under the new terms set by Rousseff, saying that would hurt profit. Rolla said yesterday in an interview the government has signaled willingness to negotiate the rules for the concessions renewal.

“We are already seeing signs from the government, and some of the government’s positions coincide with ours,” Rolla said. “There’s some comfort that the government will sit and negotiate with us to resolve this issue.”

Infrastructure Bonds

Rolla said Cemig is seeking to diversify its sources of revenue by investing in gas while bidding for 10 billion reais ($4.93 billion) worth of contracts to build power transmission lines. If Cemig wins some of those contracts, it plans to raise funding in the local market in 2013 by selling tax-free bonds linked to infrastructure projects, the executive said.

The longer Cemig and other power utilities take to negotiate the new rules with the government, the more earnings can suffer, BES Securities do Brasil SA’s analyst Gabriel Laera said.

“The government’s message for operators that decide not to renew the concession contracts now is that they are only delaying what is almost certain to be a negative outcome,” Laera wrote in a note to clients yesterday. “Given the political nature of the government’s tariff moderating agenda, we think companies that elect to push forward renewals could be hurting their chances of obtaining a favorable outcome in future negotiations.”

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