July 10, 2017 / 2:27 PM / 5 months ago

UPDATE 2-Brazil's Cemig vows to use asset sales to repay debt

(Updates with comment, share performance in paragraphs 4-7)

By Guillermo Parra-Bernal and Luciano Costa

SAO PAULO, July 10 (Reuters) - Cia Energética de Minas Gerais SA will mainly use proceeds from planned asset sales to repay 5 billion reais ($1.5 billion) of debt maturing this year, as Brazil’s most leveraged major power utility faces pressure from creditors to downsize quickly.

In a Monday conference call with investors, Chief Financial Officer Adezio Lima said Cemig had decided to fully dispose of a majority, 43 percent stake in Rio de Janeiro utility Light SA and focus on in-house generation, transmission, distribution and sale of electricity.

Cemig, Brazil’s No. 3 power utility, is making headway on efforts to cut capital spending this year after losing the licensing rights for several hydropower dams and seeing a surge in fresh capital needs from some subsidiaries, Lima said. There are 13 interested parties in the Light stake, he added.

Reuters first reported Cemig’s plans to exit Light in March.

The state-controlled utility wants to ease creditor concerns over how it will repay debt by downsizing after growing too big, too fast in the past decade. A federal government decision that scrapped power contracts brought about a decline in the value of Cemig’s power assets, tripling its debt since 2012.

“What’s clear is that Cemig’s cash generation is not enough to honor looming maturities,” said Raul Grego Lemos, an analyst with Eleven Financial Research.

Lima expects banks to agree on terms for longer Cemig maturities within 20 days. Every percentage-point decline in Brazil’s benchmark overnight rate cuts Cemig’s debt-servicing costs by 125 million reais, he said.

Cemig’s preferred shares rose 1.3 percent to 8.43 reais on Monday afternoon trading.

SUBPAR RETURNS

Cemig’s divestiture plans have taken longer than those of rivals, demonstrating the difficulties of trimming a company that expanded beyond power into fiber optics, information technology and gas distribution in recent years. Most of those takeovers have delivered subpar returns.

Proceeds from the sale of a stake in power transmission firm Taesa Transmissora Aliança de Energia SA could be used to facilitate the Light exit, Lima said.

The process to conclude the sale of Cemig’s stake in Renova Energia SA could take up to 60 days, Lima said. On Friday, Reuters reported that Brookfield Asset Management Inc proposed buying out the stakes that Cemig and Light have in Renova.

Lima said negotiations to exit the Santo Antônio hydropower dam are near conclusion and pending regulatory approval.

$1 = 3.2702 reais Reporting by Guillermo Parra-Bernal and Luciano Costa; Editing by Bill Rigby and Andrew Hay

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