Eletropaulo to list shares on Bovespa Level 2

Brazilian power distributor AES Eletropaulo plans to upgrade its shares to Level 2 of the Sao Paulo stock exchange (Bovespa) by year-end, a key step in improving the company's access to financial markets, Eletropaulo CFO Andrea Ruschmann told reporters Monday. The announcement is the latest move that Eletropaulo, a subsidiary of US power company AES (NYSE: AES) has taken to re-establish credibility and financing for its operations since it defaulted in early 2003. The company renegotiated US$2bn in debts in the past 18 months, including US$1.2bn that was settled in a debt-for-equity agreement with national development bank BNDES through the creation of the Brasiliana holding company. Eletropaulo has a 51% controlling stake in Brasiliana and BNDES has 49%. "The decision to list Eletropaulo's shares as level 2 is aligned with the management's decision to increase transparency and move closer to the financial markets," Ruschmann said. The upgrade of shares to Level 2 has already been approved by AES and BNDES, but still needs the green light from power regulator Aneel, she said. Being "closer to financial markets" means the company can obtain new loans to lengthen its 5.6bn-real (US$1.9bn) debt. The greater transparency required for level 2 shares increases the likelihood of raising financing and of obtaining a bailout loan from BNDES, Ruschmann said. Eletropaulo is one of three power groups that have filed to obtain part of a 3bn- real bailout loan package offered by BNDES, the bank's power department director Nelson Siffert told BNamericas. According to Siffert, one company has already obtained preliminary approval for the financing programs, and the bank is still considering the other two applications. Power companies have until the end of the year to fulfill the program's requirements, he said. Eletropaulo expects to obtain about 770mn reais of the package, equivalent to 50% of the company's short-term loans after having renegotiated over US$1.3bn in debt with BNDES and 2.3bn reais with private creditors in the first half of 2004, Ruschmann said. "Eletropaulo met all the prerequisites for the loan, including the lengthening of its debt," she said. "The company concluded all the paperwork and sent it to the bank about a month ago [mid-August]." One of the requirements for companies to be included in the bailout program is to list Level 2 shares in the Bovespa within two years after obtaining the loan. Eletropaulo would use the BNDES loan proceeds to replace a debt with creditors included in the US$2.3bn renegotiation. "This replacement is foreseen in a clause in the original debt rollover contract," Ruschmann said. The BNDES loan is expected have maturity of 6-10 years and pay rates equivalent to the BNDES long-term (TJLP) rate, currently at 9.75% a year, she said. By comparison, the maturity of Eletropaulo's 5.6bn-real debt has an average 3-year term and costs that vary between 2.5 percentage points over Libor and 4.5% over Brazil's 16% interbank lending rate. ROAD SHOWS Eletropaulo is also planning to meet with investors in "non-deal" road shows as part of the company's drive to improve access to financial markets, Ruschmann said. Together with CEO Eduardo Bernini, Ruschmann will meet with investors in the US, Europe and Brazil to detail the company's performance to prepare for a debt issue in the near future. "Because the road show is not linked to a specific issue, we are meeting all kinds of investors, those that invest in shares and in fixed income," she said. "We are testing investors' appetite for Brazil and for the sector as it comes out of serious trouble." The debt renegotiation and improving economic conditions led rating agency Standard & Poor's to upgrade the company. Brazil's GDP is expected to grow about 4% in 2004, up from 0.2% GDP decline in 2003, while power consumption is seen growing some 4%. "We will only issue bonds at a cheaper cost and longer maturities than our current debt structure, since we are comfortable with the current debt payment scheduled until the end of 2007," she said.