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BBC MUNDO RADIO
By Heloiza Canassa and Paulo Winterstein
Dec. 11 (Bloomberg) -- Centrais Eletricas Brasileiras SA may recover as much as 1.5 billion reais ($854 million) in yearly losses from supplying electricity to Brazil’s remote regions after the government made subsidies permanent.
Eletrobras, as Latin America’s largest utility is known, rallied to a 12-year high yesterday after President Luiz Inacio Lula da Silva signed a law extending subsidies to companies providing energy in areas of Brazil that are not connected to the national grid, which has access to cheaper hydroelectric power. The law applies to utilities in Brazil’s north region, where six of the Rio de Janeiro-based company’s units operate.
The change will help Eletrobras cover at least 50 percent of its 1 billion to 1.5 billion in annual losses from the northern region, Chief Financial Officer Astrogildo Quental said in a phone interview from Rio yesterday. Benefits of the law, which is retroactive to July 30, will begin to be booked in the fourth quarter, he said.
“We would like to recover 100 percent, but we don’t know yet,” Quental said. Regulators will determine the value of the subsidies in no more than 60 days, he said.
The law comes at the same time Eletrobras is turning 11.7 billion reais of debt owed to it by subsidiaries into equity stakes. The transaction will reduce financing costs and allow the units to pay an estimated 30 billion reais of dividends in the 10 years through 2020, Quental said last month.
Doubling Profit
The subsidies and the debt conversion may more than double recurring net income to 5 billion reais from 2 billion reais, Itau Corretora analyst Marcos Severine wrote in a note sent to clients Dec. 8. The change could add 2.6 billion reais to earnings before interest, taxes, depreciation and amortization, while converting the debt would cut financing costs by 1.3 billion reais a year, the Sao Paulo-based analyst wrote.
Eletrobras’s preferred shares, the most traded, gained 4.6 percent in Sao Paulo trading yesterday to 33.90 reais, the highest since July 1997, after the law was published in the official gazette. Voting shares rose 7.3 percent to 38.75 reais, a record. The two classes of stock have jumped 17 percent and 16 percent, respectively, this week.
The preferred shares have climbed 40 percent this year while the common equity is up 50 percent, trailing an 83 percent rally in the benchmark Bovespa index.
“Eletrobras has been working for a while to recover market value,” Sinval Zaidan Gama, head of Eletrobras’s international operations, said in an interview Nov. 25. “Intangible factors make Eletobras’s value to be lower than we believe it should be.”
Bond Sales
Eletrobras will have to raise up to 2.5 billion reais a year over the next three years through bond sales or loans to finance as much as 25 billion reais of investments in power generation, transmission and distribution, Quental said yesterday. It may also sell equity after paying as much as 10 billion reais in overdue dividends, he said.
The company would preferably raise money in international markets to create a “natural hedge” to foreign-currency denominated liabilities related to the Itaipu hydroelectric dam, the CFO said.
Eletrobras owes shareholders dividends dating back to the 1970s. The company is seeking government funds to help make the payments, which were deferred to fund projects such as the Itaipu dam on the Paraguay border.
Shareholders including the national bank for economic and social development, the mines and energy ministry and the finance ministry are “intensifying talks” to announce the dividend payment next year, Quental said.
To contact the reporters on this story: Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
Scandal Shadows Brazil's Election
First lady Marisa Leticia and senator Eduardo Suplicy with President Luiz Inácio Lula da Silva, who is leading in polls despite an ethics scandal involving his close aides, after casting his vote today.
RIO DE JANEIRO, Sept. 30 — With yet another ethics and corruption scandal lapping at President Luiz Inácio Lula da Silva’s door, Brazilians will be asked to decide Sunday whether he is worthy of a second term.
A debate was to feature President Luiz Inácio Lula da Silva and his rivals, from left: Geraldo Alckmin, Heloísa Helena de Moraes and Cristovam Buarque. Mr. da Silva pulled out, leaving his chair to face questions.
A 60-year-old former factory worker and labor union leader, Mr. da Silva has been leading in polls and seems assured of finishing first by a comfortable margin in the initial round of balloting.
The drama surrounding Sunday’s vote stems from uncertainty as to whether the president, made vulnerable by an unpleasant “September Surprise” involving some of his closest aides, will obtain the majority he needs to avoid a runoff.
A distant second in the polls is Geraldo Alckmin of the Brazilian Social Democratic Party, a 53-year-old doctor and former governor of Brazil’s largest state, São Paulo.
Two other candidates — former allies of Mr. da Silva — are now positioned to his left: Heloísa Helena de Moraes of the Party of Socialism and Liberty and Cristovam Buarque of the Democratic Labor Party. A range of polls have consistently shown them with a total of about 10 percent of the vote.
At a news conference for foreign correspondents here on Tuesday, Mr. Alckmin acknowledged his underdog status but argued that a runoff would be inevitable because of growing voter disgust with the new scandal and what he called “the corrosion of the president’s credibility.”
“The second round is another election altogether,” he said, in which Mr. da Silva’s high “rejection index” will be a factor. “In the first round I vote for who I want, while in the second round I vote against who I don’t want.”
Elected four years ago on a clean government platform, Mr. da Silva has instead presided over corruption scandals from buying votes in Congress to kickbacks on ambulances and postal contracts. The scandals have prompted resignations of his chief of staff and finance minister and the Workers’ Party president, treasurer and secretary general.
Still, until mid-September, Mr. da Silva seemed likely to cruise to a first-round victory.
But then operatives of the Workers’ Party, which Mr. da Silva founded in 1980 and still leads, were caught trying to pay $792,000 in cash for a dossier they apparently thought would incriminate Mr. Alckmin’s party in a corruption scandal. Up to now, that scandal, at the Health Ministry, has mainly involved Mr. da Silva’s party. As a result, Mr. da Silva’s campaign manager stepped down.
Mr. da Silva has been a presidential candidate in every popular election since a right-wing military dictatorship ended in 1985. Running initially on the hard left, he lost in 1989, 1994 and 1998, but then shifted toward the Social Democratic views of his opponents and won a landslide victory in a runoff in 2002, with more than 60 percent of the vote.
Nearly 126 million people are registered to vote here, the world’s fourth-largest democracy. Voting is obligatory for all citizens between the ages of 18 and 70, but disillusionment and anger, especially among idealistic young voters, over corruption have led to concerns that some voters will cast blank or spoiled ballots — or even stay home, at the cost of a small fine.
Political analysts are unanimous in agreeing that Mr. da Silva wants at all costs to avoid a runoff, which would be held Oct. 29.
Each day the Brazilian press is full of new reports that incriminate his closest associates and let his rivals raise the question of the president’s knowledge of or involvement in skullduggery that Marco Aurélio de Mello, the chief justice of the Electoral Tribunal, calls “worse than Watergate.”
Mr. da Silva has responded by simultaneously accusing the opposition of seeking to achieve through undemocratic means what it cannot achieve at the ballot box and vaguely acknowledging that some of those around him are responsible for what he calls an “insane” act of “barbarism.”
At a campaign rally this week, Mr. da Silva even compared himself to Jesus Christ, saying that he too has been betrayed by disciples.
The campaign highlight was to be a debate by the four candidates here on Thursday night. Hours beforehand, however, Mr. da Silva announced he would not participate, complaining to organizers in a letter that “some adversaries” intended to transform the discussion “into an arena of insults and aggressions, in a game with cards that are marked” against him, the incumbent.
But Mr. da Silva’s absence did not prevent his rivals from addressing a chair with his name next to it. “If the accusations are proven, will you resign?” asked Mr. Buarque, the president’s first minister of education. “Are your supporters voting for you or for your vice president?”
