Eletrobras slumps to seven-year low

• 11 years ago (2012-11-06)
• David Flin

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Centrais Eletricas Brasileiras (Eletrobras) has slumped to its lowest price in seven years as a worse than expected compensation proposal by Brazil’s government triggered a selloff. Eletrobras fell 8.2 per cent to 15.42 reais in Sao Paulo, the lowest level since August 2005, in the first day of trading since the government released its proposal. Cia Energetica de Sao Paulo (CESP) fell 5.8 per cent, and Cia de Transmissao de Energia Eletrica Paulista (CTEEP) fell 4.2 per cent.

On November 1, the Brazilian Government proposed paying generation and transmission companies about 19 billion reais ($9.3 billion) to cover the costs of their prior investments, in an effort to reduce future power prices. In exchange, the companies would be able to operate in the country for 30 years. Banco Itau cut its estimates for share price and earnings for CTEEP and CESP after the announcement. A report by Banco Itau said: “Despite the sector’s poor performance since September, we do not believe that it is time to go shopping for these stocks yet, given the unpredictable risk and the lack of marginal buyers.”

Eletrobras would receive 14 billion reais ($6.8 billion) if the company agrees to renew its concession. The government’s proposal is part of a package announced in September to cut power prices by as much as 28 per cent.