* Declines on dam renewal, tariff cut plan continue
* Eletrobras stock drops to July 1994 levels
* Preferred-stock premium over common stock shrinks
SAO PAULO, Nov 21 Shares of Brazil's Eletrobras
lost a fifth of their value on Wednesday, their
biggest, one-day decline, on expectation that a hydro dam
concession renewal plan and related power-rate cuts will slash
revenue, profit and investment.
Eletrobras preferred shares, the most traded stock by
non-government investors, fell 20 percent in São Paulo on
Wednesday to 7.84 reais, th eir lowest close since July 6, 1994
less than a week after Brazil announced its Real anti-inflation
plan and created the country's current currency. It's closing
price that day was 7.82 reais.
Eletrobras common voting shares, most of which are owned by
Brazil's government, fell 16 percent to 6.75 reais. Eletrobras
is Latin America's largest utility.
Eletrobras, along with other Brazilian power companies,
expects lower revenues as a result of President Dilma Rousseff's
plan to slash electric rates by more than 20 percent, an
initiative meant to boost economic growth.
Brazilian electricity tariffs are among the world's highest
even though about 80 percent of the country's electricity comes
from hydro, which is cheaper than oil or natural gas. Taxes and
rates set when inflation and borrowing costs were higher helped
lead to the current price levels.
As a result of the plan, Eletrobras revenue could fall as
much as 30 percent in 2013 compared with 2012, analysts led by
Francisco Navarrete at Barclays in Sao Paulo wrote in a report
to investors on Monday.
Because of lower revenue, Eletrobras shares could fall
another 90 percent to 1 real, the Barclays analysts' price
target for the next 12 months. Their previous target was for the
stock to rise to 29 reais.
Eletrobras, Latin America's largest utility, has recommended
that shareholders agree on Dec. 3 to accept a government offer
to immediately renew hydroelectric dam and power transmission
concessions expiring between 2015 and 2017 in exchange for lower
PREFERRED PREMIUM SHRINKS
Eletrobras expects an annual revenue loss of 8.7 billion
reais ($4.2 billion) from the cuts. On Monday, it warned of even
greater losses from concession renewal.
Shares have fallen nearly 60 percent since Rousseff
announced her rate-cutting plan.
Making matters worse, Eletrobras posted a sharp decline in
third-quarter profit last week, spurring further concerns over
The losses could lead the company to cancel dividend
payments to preferred shareholders for 2012, he said, and would
almost certainly lead to an overhaul of the company.
Because preferred, non-voting shareholders have preference
in the distribution of dividends under Brazilian law, premium
preferred shares have over Eletrobras common stock could
With no dividends to pay that preference means nothing.
The premium is now 1.09 reais, or 16 percent more than the
common share. At the beginning of the month the premium was 5.22
reais or 45 percent.
On top of that, Eletrobras already has the poorest overall
profitability of the Latin American utility sector, and its
efforts to control costs are unlikely to be met, Navarrete and
the other Barclays analysts wrote.
Other power companies with concessions expiring between 2015
and 2017 have threatened not to accept the government's terms
and say they will continue to charge higher prices in the near
term, making it harder for the government to fulfill its promise
of cheaper electricity starting next year.
Cemig, the utility controlled by the state of
Minas Gerais, has refused to submit several dams for renewal
citing economic problems with the proposal. Privately-owned
Cteep said its board recommended against renewing an
expiring concession to transmit power.