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Bondholders unlikely to derail Brazil's Grupo Rede takeover plan
March 26, 2013 / 1:45 PM / 5 years ago

Bondholders unlikely to derail Brazil's Grupo Rede takeover plan

* 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 (Reuters) - 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 problems.

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 operating muscle.

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 comment.


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 comment.

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 people.”

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