Brazil fund inclined to accept State Grid's CPFL bid, sources say

SAO PAULO, July 19 (Reuters) - Caixa de Previdência dos Funcionários do Banco do Brasil is inclined to accept State Grid Corp of China’s bid for CPFL Energia SA, an electricity utility in which Brazil’s largest pension fund has a 29.4 percent stake, two people with knowledge of the matter said on Tuesday.

Senior officials at Previ, as the fund is known, have elaborated a draft document in which they recommend taking State Grid’s proposal of 25 reais per share of CPFL, said the people, who spoke under the condition of anonymity since the matter remains under discussion.

Previ, which manages 155 billion reais ($48 billion) in savings for employees of state-controlled Banco do Brasil SA, has to decide on the matter before the end of July, the people said. Paulo Rogêrio Caffarelli and Gueitiro Genso, the chief executives of Banco do Brasil and Previ, respectively, discussed the matter recently, the people added.

Press representatives for Previ and Banco do Brasil declined to comment.

On July 1, State Grid, the world’s largest utility, agreed to buy Brazilian construction conglomerate Camargo Correa SA’s 23.6 percent stake in CPFL for 5.9 billion reais. Under terms of a shareholder accord, State Grid had to extend the same offer to other shareholders, including Previ and an investment vehicle called Bonaire - which has four other state-run pension funds.

A decision by Previ to accept State Grid’s proposal could lure the other funds into the deal and trigger a buyout of minority shareholders, the people said. The accord will only be signed once State Grid concludes due diligence procedures, and once Previ and the other funds relinquish their right to bid for CPFL, one of the people said.

Most state-run pension funds are desperately looking for cash as Brazil’s harshest recession since the 1930s and a flurry of ill-timed, government-mandated investments led to record losses last year.

The same person said State Grid could pay as much as 25 billion reais for 100 percent of CPFL, and assume about 15 billion reais of CPFL’s obligations. The deal also gives State Grid control of CPFL Renováveis SA, a renewable power firm in which CPFL has a 52 percent stake.

The transaction is subject to regulatory and antitrust approval.

$1 = 3.2522 Brazilian reais Editing by Andrew Hay