Companhia Energetica de Minas Gerais (CIG), also known as CEMIG recently acquired an additional 13.03% interest in Light S.A., thereby holding roughly 52% interest in the latter. Light S.A. is an affiliate company of Cemig.
The indirect acquisition took place as Cemig’s affiliate company Parati S.A. acquired a 100% stake of Luce LLC from Enlighted Partners Venture Capital for approximately R$515.94 million or US$331.8 million. Luce LLC owns roughly 75% units of FIP Luce, which indirectly owns 26.6 million shares of Light S.A. through Luce Empreendimentos E Participacoes S.A.
Moreover, recenlty Light S.A. and Renova Energia S.A., entered into an investment agreement, whereby the former will purchase fresh capital to be issued by Renova, resulting in an increase in its share capital by R$360 million.
CEMIG is one of the largest integrated electric utilities in Brazil. With more than 6,896 megawatts of installed generation capacity, the company derives approximately 97% from hydroelectric power.
We believe the company currently enjoys a favorable position to benefit from the economic recovery in Brazil. Demand for electricity in the country is on the rise and is expected to get a boost as the country is due to host two major sporting events in the coming years.
Over the long term, the company targets to achieve 20% market share in the various segments of the electricity market. Investments in fiscal year 2011 and 2012 are expected to be approximately R$2.3 billion and R$1.1 billion, respectively.
In spite of all these positive features, the strange rule of ANEEL along with interference from the state government tends to be a stumbling block on its way to progress. In addition, the company faces competitive pressures in the Brazilian market, especially from its peer Companhia Paranaense de Energia (ELP). Moreover, heavy dependence on natural water resources for top-line growth is risky.
We currently maintain a Neutral recommendation on the stock.
