Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers corporate governance activities, board decisions, and market announcements for the period ending September 30, 2009. The filing primarily summarizes minutes from Board of Directors meetings held between April and August 2009 for CEMIG and its subsidiaries, Cemig Geração e Transmissão S.A. (Cemig GT) and Cemig Distribuição S.A. (Cemig D). It also includes minutes from Extraordinary General Meetings of Stockholders held in August 2009.
Key Financial Metrics and Capital Activities
The filing does not provide consolidated revenue, profit, or cash flow statements for the period. However, it details significant capital market activities and debt issuances:
- Debt Issuance (Cemig GT): Authorized the issuance of commercial promissory notes (Third Issue) totaling R$ 2.7 billion with a 180-day tenor, remunerated at 113% of the DI rate. Additionally, authorized a Second Public Issue of non-convertible debentures up to R$ 2.7 billion (with potential for a 35% increase via supplementary/additional lots).
- Guarantees: CEMIG provided corporate guarantees for the promissory notes and debentures issued by Cemig GT.
- Acquisition Financing: Proceeds from the promissory notes are designated for capital injection into Transmissora do Atlântico de Energia Elétrica S.A. (TAESA) to facilitate the acquisition of Terna Participações S.A.
- Interest on Equity: Cemig GT approved the payment of Interest on Equity totaling R$ 107.1 million to stockholders, to be paid in two installments in 2010.
- Capital Increases: Authorized capital increases for subsidiaries including Cemig Serviços S.A. (from R$ 10k to R$ 100k) and Gasmig (via capitalization of reserves).
Material Changes and Strategic Decisions
The most significant material change involves the restructuring of the acquisition of Terna Participações S.A.:
- Terna Acquisition Restructuring: Stockholders ratified a decision to reduce Cemig GT's direct holding in Terna to a minimum of 50% less one common share. The remaining stake is to be held by a partnership with Fundo de Investimentos em Participação (FIP) Coliseu. This structure was adopted to avoid triggering early maturity of approximately R$ 1.1 billion in debt owed to BNDES and other banks, which would have occurred if Terna became a wholly state-controlled entity.
- Withdrawal from Defined Benefit Plan: CEMIG, Cemig GT, and Cemig D approved the withdrawal of sponsorship from the Defined Benefit (BD) Plan of Forluz, offering participants indemnity, reserve transfer, or migration to other plans.
- Organizational Restructuring: The Board authorized the dissolution of the Strategic Technology Management Centre (CGET), with assets and liabilities transferred to EMATER (56%) and CETEC (44%).
- Asset Acquisitions: Approved the acquisition of shares in several transmission companies (ECTE, EATE, ETEP, ERTE, ENTE) following the exercise of sell options by BIP Netherlands Holdings B.V.
Guidance, Outlook, and Risks
Management Commentary and Outlook:
- Strategic Vision: The Board defined a new vision: "To be, in 2020, one of the two largest energy groups in Brazil in market value, with a significant presence in the Americas, and to be world leader in sustainability in the sector."
- Sustainability Recognition: CEMIG was selected for the 10th consecutive year for the Dow Jones Sustainability World Index (DJSI World), recognized as a world leader in the utilities supersector.
- Investment Opportunities: A market announcement clarified that while studies are underway regarding an increase in holding in the Rio Minas Energia S.A. consortium, there is currently no concrete commitment or timeline.
- Legal Contingency: During the Extraordinary General Meeting, a minority shareholder (Southern Electric Brasil) challenged the validity of bylaw changes, arguing they were provisional due to a suspended Stockholders' Agreement. Management countered that the agreement had been annulled by a final court judgment, rendering the bylaw changes valid.
- Debt Covenants: The restructuring of the Terna acquisition was driven by the risk of early maturity of R$ 1.1 billion in debt if the target became a state company. The new partnership structure with FIP Coliseu mitigates this risk.
- Early Maturity Events: The debt instruments issued include standard early maturity triggers, including bankruptcy, default on obligations over R$ 50 million, and privatization (defined as the State of Minas Gerais losing control of CEMIG).
Key Facts for Investor Verification
- Terna Deal Structure: Verify the final closing terms of the Terna acquisition and the specific equity split between Cemig GT and FIP Coliseu to ensure the R$ 1.1 billion debt exposure to BNDES remains intact.
- Debt Issuance Status: Confirm the successful placement and full subscription of the R$ 2.7 billion promissory notes and debentures by Cemig GT.
- Legal Status of Bylaws: Monitor the status of the legal challenge regarding the Stockholders' Agreement and bylaw validity raised by Southern Electric Brasil.
- Defined Benefit Liability: Assess the financial impact of the withdrawal from the Forluz Defined Benefit Plan and the associated indemnity or migration costs.
- Capital Expenditure: Track the execution of the investment plan funded by the debt proceeds, specifically the R$ 576.1 million allocated to wind power, transmission, and capital expenditures.