Brazil mulls break-up of power group Rede -sources

Tue Jun 12, 2012 8:45pm EDT

* Break-up may help solve problems at debt-laden group

* Rede has struggled to sell stake to potential buyers

* Cemig, Equatorial may keep some Rede units -sources

BRASILIA/SAO PAULO, June 12 (Reuters) - Brazil's government is considering a break-up of debt-laden power holding company Rede Energia, which is struggling to operate as one of its units faces bankruptcy, three sources with direct knowledge of the situation told Reuters.

One option under analysis is transferring control of Celpa, the unit that filed for bankruptcy protection in February, to rival Equatorial Energia, one of the sources said on Tuesday. Units of Rede Energia that operate in the states of Mato Grosso do Sul and Minas Gerais could be sold to Cemig , the same source added.

"That's for sure under consideration," a second source said, adding that the break-up is the most-favored option among government officials since it may minimize service disruptions. Transferring control of such units to Rede Energia rivals instead of inexperienced bidders in the distribution sector may also protect customers, the three sources noted.

Interest in some power assets has grown in recent months as the government and private companies seek to boost their market share in power distribution, in order to offset the risk of declining rates in coming years. Consolidation is key for the companies to gain financial and operating muscle.

But in the case of Rede Energia and, specifically of Celpa, interest from potential buyers has been feeble since both companies announced intentions to seek an out-of-court debt renegotiation.

That has kept the planned sale of all or part of Rede Energia Chairman and controlling shareholder Jorge Queiroz Jr's 54 percent stake in the group stalled since the end of the quarter.

PRIVATE EQUITY INTEREST

So far, Equatorial, controlled by local buyout giant Vinci Partners, and GP Investments, the largest Latin American private equity firm, have been linked to a purchase of Celpa.

Private equity firms have been seen by many investors as the most likely buyers of Celpa because of their perceived ability to turn around companies in poor health. A group of Brazilian and foreign investors led by buyout firm Laep Investments could also bid for Celpa, Reuters reported in April.

Calls made to press representatives of Rede and the media office of Equatorial were not immediately answered. Cemig declined to comment for this story.

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