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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: wl9839 who wrote (15349)	5/18/1999 8:33:00 AM
From: wl9839	Read Replies (1) \| Respond to of 22640

Brazilian Utilities to Post Losses From Devaluation Sao Paulo, May 18 (Bloomberg) -- Brazil's biggest electric utilities are expected to report first quarter losses of as much as 2 billion reais ($1.21 billion) as their dollar debt and energy costs soared after the January currency devaluation. Cia. Energetica de Minas Gerais, Light Servicos de Eletricidade SA and Cia. Energetica de Sao Paulo are likely to follow other utilities that have reported losses for the quarter in the wake of a 30 percent drop in the value of the Brazilian real in the first quarter, analysts said. ''Bottom line numbers are going to be quite distorted, because of this accounting issue,'' said Lehman Brothers analyst Charles Barnett. Small gains in revenue for the quarter for some utilities-- as a recession in Brazil wasn't as severe as expected--will be outweighed by the foreign exchange losses. The losses will stem mainly from financial expenses as payments on dollar-denominated debt soared. The utilities are expected to report first-quarter earnings in the next few days. An additional hit will come from the operating cost of buying electricity from Itaipu, the world's largest hydroelectric dam. Itaipu, a joint venture between Brazil and Paraguay, charges for its electricity in dollars. Itaipu provides for about a quarter of Brazil's energy needs. Some utilities will account for the devaluation all at once, while others will take advantage of Brazilian accounting rules and defer much of the impact, meaning they'll face losses for the next several quarters. Cost Overruns One exception to the negative results will be Centrais Eletricas Brasileiras SA, since Brazil's largest utility functions mainly as a bank, and many of the loans it made to other utilities were in dollar terms. Although few analysts make formal quarterly earnings estimates for Eletrobras, they said it could report gains of more than 2 billion reais in the quarter. The utility that most severely felt the effects of the devaluation may have been Cesp, which may report a first-quarter loss of 2 billion reais, according to an average of estimates by four analysts surveyed by Bloomberg News, compared with a year- ago net income of 50.2 million reais. The state-controlled company, most of which is being sold to investors this year, had about 8 billion reais in debt even before the currency devaluation. Sao Paulo, Brazil's largest and wealthiest state, is selling the company largely to get rid of its debt, accumulated during years of cost overruns on hydroelectric dams. Also expected to suffer from the devaluation is Light, Brazil's largest distribution utility, which is expected to post a first-quarter loss of 280 million reais, according to an average of estimates by five analysts surveyed by Bloomberg News. The loss would compare with net income of 115.17 million reais in the year-ago quarter. Bridge Loans Light unit Eletropaulo Metropolitana, which serves the city of Sao Paulo, already reported a 17.5 million reais loss for the quarter. Light has over $1 billion in debt linked to the U.S. dollar. Barnett said the company will defer the up-front impact of the devaluation on part of its debt, making it likely that it will continue posting losses until the end of 2001. Cia. Energetica de Minas Gerais, Brazil's largest utility that both generates and distributes electricity, is expected to post a loss of 165 million reais, according to the average of five analysts surveyed by Bloomberg News. The loss compares with a year-ago net of 71.58 million reais. Cemig will likely account for the full value of the utility's loss, with no deferral, analysts said. Cemig and other utilities have likely seen the worst in the first quarter, Barnett said. While the effect of the devaluation on the debt will be exclusively their responsibility, they will be able to pass on to consumers the effect of the higher cost in electricity from Itaipu, he said. Cemig already got approval for a 16.25 percent rate increase last month. ------------------------------------------------------------------------ © Copyright 1999, Bloomberg L.P. All Rights Reserved.