Brazil's Utilities Heading To Market

Brazilian electricity companies are rapidly reasserting themselves in the capital markets, thanks to their attractiveness relative to other local credits and their need for cash. While some companies are content with raising funds in the local commercial paper market, others are preparing to issue straight bonds - a feat that no Brazilian corporate has been able to accomplish since the Russian crisis, and that is drawing skeptical reactions from the market.

Companhia Energetica de Sao Paulo (CESP), for example, launched a 12-month, $75 million commercial paper issue with a 10.375% coupon last week, which is likely to be followed by a $50 million, 12-month issue from Centrais Eletricas de Santa Catarina (CELESC) this week.

On the long-term side, Centrais Electricas Brasileiras (Eletrobras) and Companhia Energetica de Minas Gerais (CEMIG) have announced plans to issue $350 million and $300 million to $400 million worth of bonds, respectively, starting early next year.

The dominance of utilities in the local markets and the proactive stance of Brazil's electricity providers in the long-term markets are not coincidental, said Leandro Miranda, head of debt capital markets at Bozano, Simonsen Ltd., which is managing CESP's and CELESC's current transactions. "You're looking at companies that have very strong cash flows combined with large dollar liabilities," he said. "Most of the deals we've seen this year have come from the utilities."

Both domestic and international investors consider electricity companies to be among Brazil's stronger credits, largely because of their dependability, said one Sao-Paulo-based corporate analyst. "These companies aren't going anywhere, that's basically the bottom line. The chances of bankruptcy are pretty minimal, as compared to companies like Sharp do Brazil which tend to have more commercial risk, whereas a utility has pretty inelastic demand."

Since 1989 growth in Brazilian demand for electricity has exceeded growth in GDP in every year but 1995 and 1996.