RIO DE JANEIRO Shares of Brazil's state-led electric holding company Eletrobras (ELET6.SA) fell to their lowest level in 12 years on Friday as a sharp decline in third-quarter profit added to concern that government energy policy will slash earnings further.
The Rio de Janeiro-based company's third-quarter profit fell 30 percent from a year earlier, according to a late Wednesday filing. Brazil's financial markets were closed on Thursday.
Eletrobras preferred shares, the company's most-traded class of stock, fell 12.1 percent to 11.52 reais in afternoon trading Friday, at its lowest levels since 2005. The stock is on track for its biggest one-day decline in nearly 14 years.
The drop in Eletrobras' shares also follows the company's announcement late Wednesday that it will forgo 9.6 billion reais ($4.62 billion) in annual revenue as a result of government plans to cut electricity rates by about 20 percent.
"We expect rising noise as minority shareholders question the Board's recommendation to renew concessions," Felipe Leal and Diego Moreno, utility analysts with Bank of America Merrill Lynch, wrote in a report Thursday. While Eletrobras has private shareholders, the government controls the company.
"A conflict of interest between seeking Eletrobras' best interests and lowering final consumer tariffs is at hand for the Brazilian government," added the Bank of America analysts.
If Eletrobras accepts sharp cuts to power rates beginning next year, it has the opportunity to renew rights to operate hydro dam and power transmission concessions before they expire in the 2015-2017 period. Without renewal, Eletrobras could lose the assets and see them auctioned to the highest bidder.
In October, Chief Executive Jose Carvalho da Costa Neto said the cuts would reduce revenue by about 8 billion reais a year.
The government's plan was announced in September by President Dilma Rousseff, who wants to reduce Brazilian electricity rates. Eletrobras stock has since lost more 37 percent of its value.
Brazil's power tariffs are among the highest in the world even though the country gets about 80 percent of electricity from hydro, which is cheaper than natural gas and oil.
Eletrobras on Wednesday said the company's board recommended that shareholders agree to the renewal-for-rate-cuts plan outlined in Rousseff's September decree.
Shareholders will meet to vote on the board's recommendation on December 3.
Jose Luiz Alqueres, a former Eletrobras CEO and member of the board representing private, minority shareholders resigned on Tuesday. In his resignation letter, he attacked the plan to renew the concessions and cut rates as destructive to shareholder value in the company.
($1 = 2.07 Brazilian reais)
(Reporting by Jeb Blount; Editing by Jeffrey Benkoe, Grant McCool, Andrew Hay)