BNDES and Pension Funds to Finance “Supereletric Co”

Government sets up operation to consolidate the sector under the command of Camargo Corrêa

Acquisition of control in Neoenergia and Brasiliana would cost up to R$17 billion; and the government is putting pressure on AES to leave

The Executive has already begun to set up the financial operation and shareholder structure to create a “Supereletric Co” to be run by Camargo Corrêa. The government wants the state pension funds and the BNDES to inject resources in the new company.

Based on the format being evaluated by the Executive, CPFL (controlled by Camargo Correa) will play the lead role. The first step would be to incorporate Neoenergia, in which Previ (Banco do Brasil) and BB already have most of the voting stock. Once capitalized, the energy company would purchase Brasiliana (a holding controlled by Eletropaulo, AES Sul and AES Tietê).

As a result, as stated in Folha last month, a sector giant would be created, with more than a third of the energy distribution in the country.

Preliminary calculations indicate an investment of R$15 billion to R$17 billion would be required to acquire the majority shareholdings in the two companies.

Market analysts believe that the operation would make sense for Previ, which is also a partner in CPFL, which would lead to a conflict of interests due to its stake in Neoenergia. With teh merger of the two, Previ would be a member of the controlling block of the new company through CPFL, which would still be led by Camargo.

Sources close to the deal have indicated that Previ would make a move similar to Andrade Gutierrez in Light, selling its stake in the concessionaire but taking a position in the controlling company, Cemig, which now owns Light.

One of the mechanisms being studied by the government to make these transactions feasible is to create an Equity Investment Fund (FIP), the shareholders of which would mainly be the pension funds – Previ, Petros (Petrobras) and Funcef (Caixa Econômica Federal) – and BNDESPar, which holds the shares owned by the BNDES. The FIP would enter into partnership with CPFL to buy the other two energy companies.
The strategy is part of the decision taken by Lula’s government to set up large national groups. Minister Dilma Rousseff has already stated publicly that she supports the business and that sector concentration is a global trend.

The major obstacle with Brasiliana is its share capital structure. The American company AES, is partner with the BNDES in the holding company, and has shown little desire to sell its stake. The BNDES has 53.85% of total capital, but the operation is run by AES, as it has the majority in terms of voting stock.

According to the existing rules, neither the BNDES nor AES can trade directly with anyone else. The shares put on offer have to be auctioned, and the government has already tried to sell off the BNDES’s stake, but as AES has the preferential right of purchase, it gave up the idea.

Last month, AES stated that it was fully capitalized, after an injection of US$2 billion from the Chinese Sovereign Fund, and is keen to stay in Brazil and even increase its presence in the country. Sources close to the minister say that she considers this attitude by the Americans a “personal affront”.

The order has apparently been given to put pressure on the Americans (AES) to leave and the BNDES is already negotiating terms with the company. Sector analysts say that CPFL would probably have to pay over the odds for Brasiliana, but, given a good offer, AES would have no reason not to sell.

Another doubt surrounding this deal is the possibility of the auction attracting rivals interested in Eletropaulo. In terms of the sector as a whole, it would be difficult for a group with more financial clout than Camargo to appear, particularly when backed by the pension funds and the BNDES. According to market sources, the large energy multinationals were weakened by the global crisis.