| SAO PAULO, June 7
SAO PAULO, June 7 Chinese power utilities and
foreign investment funds are seen as the likely bidders in
upcoming asset sales in Brazil's electricity industry, as
debt-laden state utilities seek to root out years of political
mismanagement and balance sheet overstretching, according to
lawyers familiar with the market.
Centrais Elétricas Brasileiras SA, known as
Eletrobras, and Cia Energética de Minas Gerais SA,
known as Cemig, plan to divest generation and transmission
assets, including their stakes in some of Brazil's largest
hydroelectric dams - Santo Antônio and Belo Monte.
Large Chinese strategic investors will probably be the
winning bidders for the dams, because the size of the projects
fit their strategies better and they would be willing to pay
more, said Tiago Figueiró, who is part of the team involved in
electricity industry issues at São Paulo-based law firm Veirano
"It would be pretty hard to attract an American or European
investor for a project of that size," he said.
Chinese power conglomerates have gradually become the
dominant force in Brazil's electricity industry, where high
debt, a harsh recession and less stringent takeover barriers
than in other major markets have stoked a wave of acquisitions.
Eletrobras and Cemig are planning the divestitures in order
to cut debt and cushion themselves from the impact of the
harshest recession on record in Brazil, Latin America's largest
Since the start of 2015, Chinese companies have been the
buyers in most announced electricity mergers in Brazil,
according to Thomson Reuters deals intelligence data.
Brazil has been the No. 1 M&A global destination for China's
State Grid Corp, the world's largest utility, since
2010, accounting for 43 percent of the $37 billion it spent on
acquisitions during that period, Thomson Reuters data showed.
For China Three Gorges Corp, a power generator
which owns the Three Gorges dam, the world's second largest,
Brazil acquisitions represented 19 percent of its $30.6 billion
worth of M&A deals in the same period.
José Oliva, a lawyer at São Paulo-based Pinheiro Neto
Advogados, said the Eletrobras and Cemig asset sale plans are
unlikely to be much affected by ongoing political turmoil in
Brazil, as power sector acquisitions are perceived as a
Cemig, which is controlled by the Brazilian state of Minas
Gerais, has included wind farms and small power dams in a
divestiture plan worth 6.5 billion reais ($1.83 billion).
Eletrobras - Brazil's largest power holding company - is
selling stakes in more than 100 projects, from which it could
fetch around 5 billion reais.
Bankers, lawyers and industry executives expect that
European and North American investment and pension funds may bid
for the minority stakes that Eletrobras and Cemig have in
smaller projects such as power transmission lines and renewable
Paulo Dalla Nora, an asset manager at FIR Capital, says he
has already seen interest from foreign investors, particularly
in renewable energy assets.
($1 = 3.2812 reais)
(Writing by Marcelo Teixeira; Editing by Guillermo Parra-Bernal
and Leslie Adler)