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14 Jul 2011
Sao Paulo, July 14, 2011 -- Moody's America Latina Ltda. (Moody's) sees no immediate impact
on ratings following the announcement by Light's management that
its subsidiary Light Energia will inject BRL 360 million of capital in
Renova Energia S.A. (Renova). As a result of this
capitalization, Light Energia will hold 35.1% of the
voting capital and 26.2% of the total capital of Renova.
Moody's said that although the acquisition will have a material
impact on the credit metrics of both Light and Light Energia, they
should remain appropriate for the current ratings.
The application of Moody's methodology shows that despite the expected
deterioration in Light Energia's credit metrics the ratings are
still compatible with the current Ba1 and Aa2.br issuer ratings
incorporating in the implicit support of Light Energia's immediate
shareholder, Light; however, there will be less cushion
to absorb any unexpected material shortfalls in anticipated cash flow
or another debt financed acquisition.
As part of this transaction, Light and RR Participações
(RR) will sign a shareholding agreement whereby the two companies will
control Renova with 70.2% of its voting capital.
The total acquisition price is BRL 525 million considering the 26.2%
participation of Light Energia in Renova's total debt which is estimated
at around BRL 540 million as of June 30, 2011, which is equivalent
to an additional BRL 160 million of debt on Light Energia's balance
The financial settlement of this proposed capitalization should occur
in one to three months depending upon the length of time needed for the
formal approval of both creditors and the regulator.
Management has indicated that Light Energia has a firm commitment from
a local bank to fully subscribe a BRL 400 million long-term local
issuance, the proceeds of which will be used to capitalize Renova.
Moody's projects that the acquisition of a sizable minority position
in Renova will have a material impact on Light Energia's leverage
not only because of the relatively sizeable acquisition but also because
of Renova's sizeable capital expenditure program.
Renova is expected to invest around BRL1.6 billion as it implements
20 wind farm projects with total installed capacity of 456MW. The
concession rights to implement and run these wind farm projects derive
from Renova's winning two energy auctions coordinated by the regulator
ANEEL in 2009 and 2010.
The 2009 energy auction consisted of fourteen wind farms totaling 294
MW, which are to start operation in July 2012, while the 2010
energy auction consisted of six 162 MW wind farms scheduled to come on
stream in September 2013. Renova has already signed long-term
purchase power agreements (PPA) up to twenty years with CCEE (Brazilian
chamber of energy commercialization) covering the expected output of both
Light's management has stated that it has already negotiated with
the BNDES long-term funding in the amount of BRL 590 million to
be disbursed in tandem with the progress made in the projected capital
expenditures. An additional amount of around BRL 316 million is
under negotiation with BNB and Light's management is confident that
these negotiations will be concluded in a timely manner. When combined
with the proceeds of the BRL 360 million capitalization from Light Energia,
the BNDES and BNB funding should be adequate for completing the existing
projects. However, Moody's points out that any delay
in receiving the disbursement of BNB's funding resources could cause
some liquidity pressure in the medium term.
Light's management announced that Renova will participate in a new
electricity auction this August for the implementation of 424 MW in wind
farm projects, with operations planned to begin in July 2014,
which would be in addition to the existing projects. The estimated
amount required for this investment would be around BRL 1.6 billion.
Should Renova win at this energy auction, Light has no formal funding
commitment in place. Light's management indicated it would
turn to BNDES for part of the required funding, which Moody's
deems feasible, and could eventually consider the issuance of additional
equity. Moody's will closely monitor this additional capital
investment and financial strategy to evaluate liquidity arrangements and
the impact this potential concession would have on Light's and Light
Light Energia should start to benefit from the expected cash flow of the
wind farm projects as soon as July 2012 when 294 MW of wind generation
starts operating. Moody's expects that Light Energia will
post significant improvement in credit metrics in 2013 with a full year
of operations of the first of the wind farm project plus the 162 MW of
the second wind farm comes on stream in September 2013.
In addition, Light Energia has indicated that around 380 MW of electricity
contracts will expire between the end of 2012 and the beginning of 2013
and that it expects these to be renewed at tariffs that, in accordance
with management's information, could be around BRL140 per
MWh, which is much higher than Light Energia's prevailing
average tariffs of around BRL70 per MWh.
One should bear in mind that for consolidated accounting purposes,
Light Energia will just recognize 26.2% of Renova's
Moody's projects that Light Energia's credit metrics will
deteriorate mainly over the next two years in light of the additional
debt to be issued for the acquisition of Renova with virtually no additional
cash flow from operations being generated during this period until the
second half of 2012.
Moody's expects cash flow from operations over debt to average 20%
from 2012 through 2014, as compared to the previous 31% three-year
average. In the same period, interest coverage is projected
to average 2.8x, which compares to the previous three-year
average of 4.0x. This projection does not consider any additional
capital expenditures or acquisitions, which could further impair
the company's credit metrics.
Light's Energia's Ba1 and Aa2.br issuer ratings incorporated
some potential deterioration in credit metrics as Moody's expected
that Light and Light Energia would be used as the main vehicles for the
acquisition of generation and distribution assets, as publicly stated
by Light's controlling shareholders.
Moody's also ran projections for Light to evaluate the impact this
acquisition would have on its credit metrics. Similarly,
Light's consolidated credit metrics will also deteriorate but to
a lesser extent given the relatively strong operations of Light SESA.
Future rating actions will largely depend on the adequacy of ongoing funding
and liquidity arrangements, the potential of further acquisitions
and their impact on credit metrics and a better understanding of the level
of support of Light Energia's immediate shareholder Light and its
ultimate major shareholder CEMIG.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The principal methodology used in rating Light Energia was the Global
Unregulated Utilities and Power Companies published in August 2009.
The principal methodology used in rating Light S.A. was
Regulated Electric and Gas Utilities published in August 2009.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service, Inc.
Moody's America Latina Ltda.
Moody's sees no immediate impact to Light's and Light Energia's ratings with the proposed Renova transaction
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