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03 Oct 2018
New York, October 03, 2018 -- Moody's Investors Service ("Moody's") has today
affirmed the Ba3 rating of Centrais Eletricas Brasileiras SA - Eletrobras
(Eletrobras), including the company's senior unsecured debt and
corporate family rating (CFR). Simultaneously, Moody's affirmed
the company's baseline credit assessment (BCA) at b1. The outlook
..Issuer: Centrais Eletricas Brasileiras SA -
...Corporate Family Rating (CFR), Affirmed
...$1750M Senior Unsecured Global Notes due
2021, Affirmed at Ba3
...Outlook, Remains Stable
Eletrobras' Ba3 ratings consider Moody's joint default analysis for the
company as a government-related issuer and therefore, it
incorporates our assumptions for moderate support and high dependence
levels from the government of Brazil (Ba2 stable). Eletrobras'
BCA of b1 reflects the company's credit profile on a stand-alone
basis, which has been supported by the ongoing progress of its business
plan to enhance internal controls and improve profitability. It
also considers Eletrobras' dominant position in the Brazilian electricity
market and its strategic role for economic development given the participation
in most of the country's relevant energy projects. Constraining
the company's standalone credit profile is the still high leverage
and large contingent liabilities.
The stable outlook on Eletrobras' ratings in line with the stable
outlook on the government of Brazil's Ba2 rating. It also incorporates
Moody's view that the company's standalone credit profile will continue
to gradually improve.
During the 3rd quarter of 2018, Eletrobras achieved important milestones
on the initiatives outlined under the company's 2017-2021
Business and Management Master Plan, including the divestiture of
four unprofitable distribution companies (CEPISA, CERON, Boa
Vista and EletroAcre), and the sale of minority shareholdings in
12 wind and ten transmission projects for about BRL1.3 in cash,
which, in our view, will help to reduce the balance sheet
pressure and approach the company's net leverage reduction targets
by fiscal year end 2018. Another noteworthy development include
a decision of the United States Department of Justice not to prosecute
the company under the Foreign Corruption Practices Act. Earlier
this year, the company has also signed the initial settlement of
a class action dispute with shareholders by paying $14.75
million, together those developments reduce the prospective uncertainty
on contingent liabilities.
On the other hand, there are still some pending developments to
materialize in the near term, including the divesture of Amazonas
Distribuidora de Energia (Amazonas D), which is scheduled to occur
in October 25, and the sale of Companhia Energética de Alagoas
(CEAL), which remains suspended because of a ruling by a Federal
Supreme Court minister following. We also expect the company to
make another attempt to sell the remaining ownership stakes in two transmission
lines and nine wind power generation projects that received no bids during
the September 27 auction. Additionally, a long-term
solution for completing the construction works at Angra III 1.4
gigawatt nuclear power plant, and to develop Eletrosul's transmission
projects, comprising 1,900km of transmission lines,
and eight new substations, are also pending reduce the execution
risk on the company's capital expenditures.
For the most recent reporting period, in June 30 2018, Eletrobras
reported about BRL46 billion in consolidated debt outstanding.
The company also has around BRL16.9 billion in past due obligations
with suppliers, mainly with Petroleo Brasileiro S.A.
-- PETROBRAS (Ba2, stable), which will begin to amortize
upon the successful completion of the distributor's privatization.
As a result, it will pressure Eletrobras consolidated leverage metrics
in the near term. Although part of those liabilities are covered
by regulatory claims and reimbursement credits from sector charges,
the exact credit amount and the timing for compensation depends on regulatory
Following the privatization of the distribution companies, and in
the absence of other major business transformation events, we estimate
Eletrobras' pro-forma Net Debt EBITDA, adjusted to
Moody's standard adjustments, will improve to about 6 times
by year-end 2019, compared to 12.7 times as of the
June 30, 2018, which remains relatively high for its current
rating category. Moody's base case scenario considers that
the initiatives outlined by the company's business plan will be
to be mostly completed in the first quarter of 2019, leading to
prospectively healthy EBITDA growth for the company, despite relatively
lower revenues and higher debt levels.
Going forward, we expect Eletrobras to earn approximately 65%
of its earnings and cash flow from the generation business with most of
the remaining portion being sourced by low risk transmission businesses.
As a result, Moody's has decided to change analytical approach
to rate the company to the framework of the Unregulated Utilities and
Unregulated Power Companies methodology, in line with that used
to rate Eletrobras' peers, such as Cemig Geração
e Transmissão S.A. (B2, Rating under review),
Empresas Publicas de Medellin E.S.P (Baa3, negative)
and Enel Americas S.A. (Baa3 negative).
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward ratings pressure could result from a continued trend of stronger
cash generation through asset sales or the perception of prospective improvement
in the company's liquidity and debt maturity profile. A material
reduction of the uncertainties around the company's contingent liabilities
or more visibility on the continuity of the management's disciplined
financial strategy for 2019 and beyond may also prompt an upgrade of Eletrobras'
ratings. Quantitatively, the ratings could be upgraded if:
the Cash Flow (CFO) pre-WC to net debt ratio remains close or above
10% (13% as of June 30, 2018), and the Interest
Coverage Ratio remains above 1.8x (1.8x as of June 30,
2018) on a sustainable basis.
Negative rating pressure is unlike in the near term, but it could
result from a rapid deterioration in the company's liquidity profile resulting
from challenges in refinancing its short term debt obligations and/or
an unexpected large cash outlays related to the company's contingent liabilities.
Moody's would consider a downgrade if such pressures were not mitigated
by an extraordinary financial support from its shareholders or upcoming
asset sales. A weakened support of the regulatory framework could
also prompt a downward action, as well as deterioration in the sovereign's
credit quality. Quantitatively, the ratings could be downgraded
if: the CFO pre-WC to total net debt ratio falls below 5%
Headquartered in Rio de Janeiro, Eletrobras is a holding company
controlled by Brazil's federal government with 51% of Eletrobras'
voting capital and 41% of its total capital. Eletrobras
is the Brazil's largest electricity company accounting for 31%
of the country's generation capacity and 47% of the installed
transmission lines. In the last twelve months ended June 30 2018,
the company's adjusted net revenues reached BRL34 billion.
As of June 30, 2018, the company reported cash on hands at
around BRL7.4 billon compared to around BRL9.0 billion in
debt maturities through December 2019.
The methodologies used in these ratings were Government-Related
Issuers published in June 2018, and Unregulated Utilities and Unregulated
Power Companies published in May 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt,
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Vice President - Senior Analyst
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New York, NY 10007
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No Related Data.
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