Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers the month of March 2006. The document summarizes Board of Directors meetings held between December 2005 and February 2006, a General Meeting of Debenture Holders, and the closing of a public distribution of Senior Units. CEMIG is a Brazilian listed company headquartered in Belo Horizonte, Minas Gerais.
Key Financial Metrics and Transactions
- Dividends: The Board ratified the declaration of extraordinary dividends totaling R$ 897 million, scheduled for payment on January 27, 2006.
- Capital Markets Activity: CEMIG successfully closed the public distribution of 900 million Senior Units of the CEMIG CRC Investment Fund, raising a total of R$ 900 million at an issue price of R$ 1.00 per unit.
- Credit Rating: The Senior Units received a risk rating of A- (bra) from Fitch Ratings.
- Debt Management: Debenture holders representing 90.48% of the Third Issue approved an amendment to extend a specific period from 120 to 210 days.
Material Changes and Strategic Targets
The filing details significant governance changes regarding the company's Long-Term Strategic Plan and financial covenants. The Board approved amendments to the Bylaws to establish specific consolidated targets for management:
- Debt-to-EBITDA: Target to keep consolidated indebtedness at or below 2.0x EBITDA (with a temporary exception limit of 2.5x).
- Leverage Ratio: Target to keep the Net Debt / (Net Debt + Stockholders' Equity) ratio at or below 40% (with a temporary exception limit of 50%).
- Capital Expenditure: Target to limit annual capital expenditure to a maximum of 40% of EBITDA (with temporary limits of 65% for 2006 and 55% for 2007).
- Cash Balance: Target to limit current asset funds to a maximum of 5% of EBITDA (with a temporary exception limit of 10%).
Additionally, the Board authorized participation in a public electricity transmission service project on the Rodeo-Chena low voltage line in Chile.
Guidance, Risks, and Management Commentary
Management Commentary: The Chairman clarified that the payment of extraordinary dividends was a management proposal and not driven by the budgetary needs of the State of Minas Gerais, which holds a surplus. The dividend payment is conditional upon the homologation of the Fourth Amendment to the Contract to Assign the Outstanding Balance on the CRC (Results Compensation) Account.
Risks and Contingencies: The filing notes that the validity of the dividend declaration is contingent on stockholder approval of the CRC contract amendment. The Board also reviewed work safety data for October and November 2005, highlighting internal measures taken to prevent future accidents.
Unusual Items: The filing includes the approval of a technical feasibility study to record deferred tax credits in compliance with CVM Instruction 371.
Investor Verification Checklist
- Verify the final homologation status of the Fourth Amendment to the CRC Contract, as the R$ 897 million dividend payment is conditional upon this approval.
- Confirm the allocation of the R$ 900 million raised from the Senior Units distribution and its impact on the company's liquidity.
- Monitor compliance with the newly established financial covenants (Debt/EBITDA and Leverage ratios) in upcoming quarterly reports.
- Review the progress and regulatory approval for the Rodeo-Chena transmission line project in Chile.
- Assess the impact of the deferred tax credit recording on future earnings and cash flow.