Exclusive: Brazil's Cemig hires banks to sell gas business, hydroelectric plants - sources

SAO PAULO (Reuters) - Cia Energética de Minas Gerais SA has hired at least three investment banks to prepare the sale of small hydropower plants and a gas distribution unit, according to three sources with direct knowledge of the plans, part of efforts by Brazil’s second largest power distribution firm to cut its debt.

Cemig CMIG4.SA, which is controlled by the Brazilian state of Minas Gerais, has hired Itaú BBA SA to prepare the sale of the gas unit, Cia de Gás de Minas Gerais SA, known as Gasmig, said two of the sources, who asked for anonymity since the plan is private. Cemig expects to raise 1.7 billion reais ($517 million) from the sale of the Gasmig unit, the sources said.

According to the three sources, Cemig also gave a mandate to Banco do Brasil SA BBAS3.SA and Grupo BTG Pactual SA BBTG11.SA to organize the sale of some of the power utility's 24 small hydropower plants, known in Brazil as PCHs, located in the state of Minas Gerais.

Belo Horizonte, Brazil-based Cemig and the banks Itaú BBA, Banco do Brasil and BTG Pactual declined to comment.

Cemig is selling assets with disappointing returns or too much need for capital spending in an effort to reduce a debt burden that reached over 13 billion reais at the end of March.

Reuters recently reported that Cemig-controlled utility Light SA LIGT3.SA is negotiating the sale of a 16 percent stake in renewable energy utility Renova Energia SA RNEW11.SA, attracting the interest of State Grid Corp of China [STGRD.UL], Three Gorges Corp [CYTGP.UL] and CGGC Energy China.

Preferred shares in Cemig, the company’s most widely traded class of stock, gained 29 percent last month on speculation about potential asset sales and are up 35 percent this year.

According to the three sources, Cemig’s main shareholder, the state of Minas Gerais, has no money at this point to inject fresh cash into the utility.

Regional governments in Brazil, including mineral-rich Minas Gerais, are struggling with record budget deficits - which led Brazil’s federal government last month to refinance 81 billion reais of debt owed by the state.

The move by Cemig and some subsidiaries may also add momentum to a flurry of electricity mergers and acquisitions in Brazil, where years of rampant debt-taking and erratic government policies hampered performance. State Grid last week announced the $1.8 billion acquisition of a 23 percent stake in CPFL Energia SA, Brazil’s largest non-government power utility.

State Grid, which bought the stake from engineering group Camargo Correa SA [PMORRC.UL], could pay up to $8 billion if the Chinese company needs to buy out other major and minority shareholders in CPFL Energia and subsidiary CPFL Energias Renovaveis SA CPRE3.SA as the shareholders agreements demand, analysts have said.

Reporting by Tatiana Bautzer, Guillermo Parra-Bernal and Luciano Costa; Editing by Bill Rigby