Brazil’s power co Equatorial shares jump after deal for Enel’s Celg-D announced

By Gabriel Araujo

SAO PAULO (Reuters) -Brazilian power company Equatorial Energia SA has agreed to acquire local electricity distributor Celg-D, a securities filing showed on Friday, ending the reign of Italy’s Enel SpA over a firm that has long struggled with quality issues.

Equatorial will pay 1.58 billion reais ($309 million) for Celg-D in a deal that also includes a 5.71 billion real debt restructuring, while Enel said it will book a loss of $990 million related to the transaction.

Analysts liked the price and Equatorial shares surged as much as 7%, making it the top gainer on Brazil’s Bovespa stock index, which was down 2%.

Credit Suisse analysts said the deal is positive but noted that it lacked funding information. JPMorgan also praised the move, saying the price was better than expected.

“We believe the deal will not only be accretive for Equatorial but also rebuild the company’s capital allocation prestige with the investor community after the expensive acquisition of Echoenergia last year,” JPMorgan said.

Enel paid 2.1 billion reais to buy Celg-D in a privatization in 2016, but the company has ranked among the worst Brazilian power distributors in terms of service quality, failing to reach some minimum regulatory levels, according to power regulator Aneel.

Enel Americas SA said in a filing with the SEC that it expects to record a loss of about $990 million in its consolidated net result as a result of the transaction.

Milan-traded shares in Enel fell 3.7% in afternoon trading and Chile-traded shares in the Americas subsidiary were flat early in the session.

Under the deal, Enel Goias will repay the intercompany loans worth around 5.7 billion reais within 12 months from the closing.

The transaction is expected to generate a positive effect on Enel’s consolidated net debt of around 1.4 billion euros, the Italian group said in a statement.

Enel said the parties have also agreed on some potential earn-out payments depending on the result of certain still unquantifiable contingencies that are in progress.

Reuters had reported earlier this year, citing sources, that Enel was in talks to sell Celg-D, which distributes power to 3.3 million customers in Brazil’s center-west state of Goias.

In July, international contenders such as CPFL Energia SA, controlled by China’s State Grid Corporation, and EDP Energias do Brasil SA, controlled by Portugal’s EDP, had dropped out, Reuters reported exclusively.

Goias Governor Ronaldo Caiado, who is up for re-election, cheered the deal, saying it was a fundamental step for the state to overcome power distribution issues.

“We will closely monitor the transition and services provided by the new company,” Caiado added.

Equatorial said in its filing that the deal will allow it to diversify its distribution portfolio by entering a new region.

Chief Executive Augusto Miranda already said last month that the company was interested in expanding its power distribution activities.

The deal still requires approval from Brazilian regulators.

($1 = 5.1171 reais)

(Reporting by Gabriel Araujo; Additional reporting by Francesca Landini in Milan; Editing by Jason Neely, Kirsten Donovan, Andrea Ricci and Mark Porter)