Furnas could be exposed to charges of R$ 23.4 billion from creditors, with the increase in participation in the holding Madeira Energy SA. The data is contained in a document prepared by the consultancy EY and obtained by Power 360.
With the government’s rush to privatize Eletrobras, its subsidiary Furnas decided to invest up to R$1.58 billion in Madeira Energia SA –holding which owns 100% of Santo Antônio Energia, which in turn owns the Santo Antônio hydroelectric plant in Porto Velho (RO).
However, due to contractual provisions, it is necessary for the debenture holders to “forgive” the contribution. Otherwise, holders of the 1st and 2nd series debentures can collect the guarantees in advance. They deliberate this Monday (May 30, 2022), at 11 am.
According to the Power 360, the 50% quorum of this 1st assembly will probably not be reached. But Furnas must obtain approval at the 2nd meeting, with a lower quorum, scheduled for June 6 – deadline set by the Eletrobras Board of Directors, otherwise the public offering of shares will be cancelled.
COLLECTION OF BRL 23.4 BI
It turns out that Furnas’ capital increase, from 43% to 72%, will make the company recognize in its balance sheets the debt of R$ 19 billion of Santo Antônio Energia.
The increase in Furnas’ debt and its interest in the company could trigger a collection of R$23.4 billion from Furnas’ creditors and Santo Antônio Energia itself. For Furnas, the charge may be R$4 billion, while Santo Antônio Energia may have contracts worth R$19.4 billion that are terminated early.
This is because the contracts have clauses that allow the early maturity of debts if certain criteria are not met. These criteria can be either a change in shareholding without prior approval or an increase in net debt to equity or Ebitda (earnings before interest, taxes, depreciation and amortization).
The consultancy’s projection for Furnas’ net debt after the capital increase is R$ 27.4 billion in December 2022. This means that the net debt to Ebitda ratio would be 4.8x – that is, it would take more than 4 years for Furnas to pay its debt. This level of indebtedness is considered risky.
For December 2023, the company is projected to be able to reduce the indicator to 3.4x.
However, another EY document recommends that Furnas should consider Santo Antônio Energia’s indebtedness as R$21.9 billion and not R$19 billion, as reported. This is not the only discrepancy between official surveys and the results of audits.
LEGAL RISK OF BRL 5.1 BI
A report made by Tauil & Checkerfor example, indicates a legal risk of BRL 5.1 billion associated with ongoing lawsuits.
The value tends to be even higher, as the office claims that Santo Antônio Energia failed to inform about the existence of 18 ongoing actions. According to the text, however, there islow representativeness of the reported values” referring to open processes.
Bradesco X Bradesco
Bradesco BBI was hired for R$ 10 million to negotiate with debenture holders. It suggested a 0.5% premium over the updated nominal value of the debenture, if the proposal is approved. However, the Power 360 found that, given the urgency, this value has already risen.
It so happens that Bradesco manages all 1st series debentures and 23% of 2nd series debentures issued by Furnas in 2019. In practice, the bank is negotiating with itself. According to the Power 360there may be questions in the Judiciary about a possible conflict of interest.
Understand
The problem at the hydroelectric plant started in 2015. In that year, Santo Antônio Energia, owner of the plant, filed an inquiry with the International Chamber of Commerce against the Consortium Construtor Santo Antônio. It asked the group to bear the costs assumed by the company because of delays in operations, which began in 2012.
The result was not what was expected and, in April of this year, the Court determined that the Santo Antônio Energia pay BRL 1.6 billion to the consortium, plus BRL 8.8 million for arbitration costs.
The solution found was to increase the social capital of Madeira Energia SA –company that owns 100% of Santo Antônio Energia– with the issuance of new shares. The estimated increase is up to R$ 1.58 billion.
Last Tuesday (May 24), the Board of Directors of Furnas defined that the company will exercise its preemptive right over the shares issued by Madeira Energia. In addition, if its partners do not exercise the same right, Furnas will keep the remaining shares. This would increase its share capital to 72%.
In practice, the Eletrobras subsidiary would bear the arbitration debt.
It so happens that the debentures issued by Furnas establish that a contribution equal to or greater than 5% of the company’s Ebitda can characterize default.
According to the financial statements as of December 31, 2021, the contribution would exceed BRL 422.65 million. This obliges the subsidiary to request approval from the debenture holders.
OTHER SIDE
O Power 360 contacted Furnas and Bradesco. The Eletrobras subsidiary stated that information on the capital increase is available in a public notice published on May 22, 23 and 24. Bradesco did not respond until the closing of this report. The space remains open for manifestation.
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