Cemig Declines After Rate Increase Limit Report: Sao Paulo MoverDenyse Godoy
Cia. Energetica de Minas Gerais, Brazil’s third-biggest electric utility by market value, fell after O Estado de S. Paulo reported that the government plans to limit increases in power distributors’ rates.
Shares of Cemig, as the company is known, declined 1 percent to 18.45 reais at the close of trading in Sao Paulo, the lowest in two weeks. The Ibovespa stock index surged 2.6 percent. The MSCI Brazil/Utilities index gained 1 percent.
President Dilma Rousseff plans to force power distributors to accept rules establishing lower rate increases for customers under the renewal of licenses expiring from 2015 to 2017, O Estado de S. Paulo reported today, citing an unidentified government adviser.
If the news is confirmed, companies like Cemig and Copel could see their concessions “terminated and reauctioned,” Antonio Junqueira and Joao Pimentel, analysts at Grupo BTG Pactual, wrote in a note to clients today. That would mean a downside of 4 reais per share if Cemig has to dismiss all of its employees at the distribution business and 2 reais if its workers are transferred to the new concession, they wrote.
The president’s press office didn’t respond to a phone call from Bloomberg seeking comment. Belo Horizonte, Brazil-based Cemig declined to comment.
“The news concerns us more because of the volatility it might create for some names in the short and mid-term,” BTG’s analysts wrote. “The sector has had a bumpy year since September 2012, and more noise would clearly not be helpful.”
Rousseff announced in September of last year a plan to reduce electricity costs for consumers and businesses by demanding that generation and transmission companies agree to cut rates before renewal of hydroelectric and power-line concessions.
Cia. Paranaense de Energia, the utility known as Copel, retreated 0.8 percent to 31 reais.