Prices for the power EBR sells dropped dramatically in 2012 when it renewed its concession contracts for another 30 years; as a result, EBR reported a loss of 6.3B Brazilian reais last year, raising doubts about its ability to carry out its plan to spend ~60B reais over the next four years without fresh capital.
Power rationing won't be needed, Costa says, but price increases need to take effect immediately so they have an impact on consumption.
"There is so much uncertainty in the region with a lot of election or political clout that the market is not discriminating between good and bad companies," says a portfolio manager for the JPMorgan Latin America Fund.
Petrobras (PBR -2.5%) and Electrobras (EBR -4.3%) shares are weak after Standard & Poor's lowers its ratings outlook on both Brazilian companies to negative from stable while affirming its respective BBB and A- credit ratings. The outlook revision reflects its similar action on the outlook of Brazil's sovereign rating and the companies' close ties as government-related entities.
Cia. Energetica de Minas Gerais (CIG -12.2%) and shares of other Brazilian utilities are under pressure on expectations for Brazil's regulator to curb electricity rate increases Cemig had planned to put in place in April. Shares also were downgraded yesterday at Standpoint Research. Also: ELP -3.7%, CPL -3.4%, EBR -2.4%.
Electrobras (EBR) +22.2% premarket after Brazil's government offers an additional 9.87B reais ($4.7B) to utilities that accept Pres. Rousseff’s plan to renew electricity license with lower rates, on top of 20.04B reais announced Nov. 1. EBR preferred shares lead the Bovespa index, up 28%. ELP +4.1%, CIG +2.6%, CPL +1.2% premarket.
Brazilian utility stocks come under pressure following a local report that companies failing to renew expiring contracts, which carry stricter government rules aimed at cutting costs, will be barred from participating in future auctions for licenses. Decliners include Cemig (CIG -4%), which also is downgraded by Barclays; ELP -1.1%, EBR -2.9%, ENI -1.5%.
Shares of Brazilian electric utilities plunge a day after the country announced a major cut in electricity taxes that will lower energy costs for industries and consumers. UBS says the “stock-price declines on regulatory noise seem exaggerated,” presenting buying opportunities. CIG -20.8%, ELP -8.9%, EBR -7.9%, CPL -3.7%.
Remember all those stories about China coming to bail out Europe by peeling off some of its reserves to buy sovereign and EFSF paper? They never made any sense, and thankfully, EU officials have stopped floating them. China will invest plenty in Europe, but it wants real assets, to wit today's announcement of China Three Gorges taking Portugal's stake in EDP (EDPFY.PK) off of its hands for a song.