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Eletrobras Rebounds From 10-Year Low in Sao Paulo Trading

Nov. 23 (Bloomberg) -- Centrais Eletricas Brasileiras SA, South America’s largest power generator, advanced in Sao Paulo on speculation the stock’s 55 percent plunge this month through yesterday was overdone.

The state-run utility’s preferred shares jumped 5.5 percent to 7.70 reais at the close of trading in Sao Paulo after surging as much as 10 percent earlier. The gain pared this week’s decline to 34 percent. The benchmark index gained 2 percent today and is up 3.2 percent in the past five days.

Eletrobras, as the utility is known, led declines this month among members on the MSCI Brazil/Utilities index and reached a 10-year low yesterday on concern President Dilma Rousseff’s plan to seek rate cuts of as much as 28 percent will erode profits. The prospect that the stock may have hit bottom probably has some traders covering short positions, or bets on price declines, according to Marcel Kussaba, the head of equity research at Quantitas Asset Management.

“Eletrobras’s advance today is purely a technical move, because it’s impossible now to make a valuation based on the company’s fundamentals,” Kussaba said by phone from Porto Alegre, Brazil. “Nobody knows yet the size of the losses it will suffer because of the new rules.”

The government is offering Eletrobras 14 billion reais ($6.7 billion) in cash as compensation for agreeing to modify rates laid out in contracts set to expire in 2015 and 2017, less than half the 30 billion reais the company had said it expected to receive.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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