* Bondholders' efforts seen being tamed by government
* Sources say takeover to take place around June
* Plan calls on bondholders to accept 85 pct haircut
By Anna Flávia Rochas
SAO PAULO, March 26 Opposition from foreign
bondholders is unlikely to stop the takeover of Brazilian power
holding company Grupo Rede Energia SA by two rivals, several
sources with direct knowledge of the situation told Reuters.
The process should be concluded ahead of a court-mandated
deadline in July, and the buyout plan by Equatorial Energia SA
and CPFL Energia SA may help limit losses
for bondholders, the sources said.
But bondholders are fighting a proposal that would
restructure Grupo Rede's debt and cut the value of their
holdings by 85 percent.
Cash-strapped Grupo Rede, which has debts of more
than 4 billion reais ($2.1 billion), has been struggling since
energy regulator Aneel seized eight of its units in August in an
effort to prevent it from halting electricity service in six
states. The units, power distributors in different parts of
Brazil, are all suffering from serious financial and operational
Equatorial and CPFL are in the process of acquiring Grupo
Rede for the symbolic price of 1 real ($0.49) plus assumed debt.
They have the exclusive right to conduct takeover talks with the
government and Grupo Rede's creditors. This exclusivity has
prevented rivals Energisa SA and Copel, as Cia
Paranaense de Energia SA is known, from presenting
formal bids, though they have made a preliminary proposal.
"I believe the process will extend until the last minute but
it will go through," one source said. The sources expect the
sale to be concluded by June.
Grupo Rede has long been considered a takeover target as the
Brazilian government and private companies boost their market
share in power distribution, a segment in which bigger scale
offsets the outlook for lower revenue in coming years.
Consolidation is key for power companies to gain financial and
With court backing, Equatorial and CPFL proposed a so-called
haircut of 85 percent to holders of about $500 million of
dollar-denominated debt in a restructuring plan announced last
week. Given the steep haircut and chances that state development
bank BNDES will be fully repaid, bondholders are
expected to push back, said a source currently working for them.
"International creditors were hit hard by the plan's very
tough stance on them ... the process as it stands now is very
uncompetitive for us," said the second source, who declined to
be named because talks are still under way.
One key concern, said the source, is that the government
could press local debtholders to approve Grupo Rede's
restructuring proposal in order to dilute any opposition by
foreign bondholders. However, there seems to be little cohesion
among the latter, who might not object to Grupo Rede ending up
in the hands of two strong local players.
Spokesmen for CPFL, Equatorial and Grupo Rede declined to
Last year's decision to seize Grupo Rede came after the
group's chairman and largest shareholder, Jorge Queiroz Jr.,
failed to sell part or all of his 54 percent stake. His stake
was once valued at $600 million by some analysts.
A source with direct knowledge of the preliminary
Energisa-Copel proposal said the companies had been given only
partial access to Grupo Rede documents and plan to propose a
smaller discount to bondholders. Both companies declined to
To overcome potential divergences and opposition from other
Grupo Rede creditors such as Caixa Economica Federal's
FI-FGTS workers' severance fund, Equatorial and CPFL are trying
to convince the fund to convert 712 million reais of debt into
shares of Grupo Rede, sources involved in the talks said.
"That might be for the moment the most likely solution ...
some amendments to the original proposal are admissible," said
one of the sources.
Talks between the potential buyers and BNDES are also taking
place, the second source said.
Thomas Felsberg, the lawyer representing the controlling
shareholder in the company, said "a plan like this always lures
opponents and supporters. So far, creditors want to know what's
going on - sometimes there are misunderstandings and unhappy