beyondbrics

By Leandro Molina of mergermarket

Brazil has 64 power distribution companies – more than twice its number of states. With the government keen to reduce rates, and infrastructure requiring new investment, consolidation is on the cards.

Enter Cemig, Brazil’s second-largest electricity generator and distributor, which is run by the state of Minas Gerais. The company promised in January to invest 3bn reais ($1.75bn) in acqusitions this year. Today it announced the most timid of moves in that direction – the purchase of a 49 per cent share in Lightger, a electricity generator.

On its own, the move for Lightger won’t stretch Cemig’s finances: the stake is valued at just 20m reais ($11.3m). Lightger, whose assets include a small hydropower plant in Paracambi, is controlled by listed Rio de Janeiro-based power company Light Servicos de Eletricidade, in which Cemig increased its stake in Light Servicos de Eltricidade up to 39% in December 2009.

The wider battle for Brazil’s energy assets is picking up, with state-owned, private and foreign players all involved. America’s AES Corporation, Spain’s Iberdrola and France’s Suez are all looking to build on their existing investments in the sector, where Chinese companies have also made investments in the past two years.

Cemig, which in the past has openly spoken of possible acquisitions, today refused to name its ongoing targets. However, a fight is looming over Elektro, an energy distributor which supplies electricity to more than 200 municipalities in Sao Paulo state and five municipalities in Mato Grosso do Sul.

Elektro’s counts Ashmore Energy International of the US as a shareholder, and the list of potential suitors includes Cemig, AES Eletropaulo, and Neoenergia, which is part-controlled by Iberdrola and which has reportedly already submitted a bid. The losers could quickly become takeover targets themselves.

Cemig’s shares in Sao Paulo were trading down 0.6 per cent on Thursday; they are down 12 per cent for 2010. Last week, the company announced second quarter earnings of 290.5m reais ($164.7m), 45 per cent down from the previous year.

Related reading:
Brazil’s challenge: fuel for a nation - FT
Special report: Brazil infrastructure 2010 - FT