CIG's 4th Promissory Notes Issuance

Brazil-based integrated electric utility, Companhia Energetica de Minas Gerais(CIG - Analyst Report), also known as CEMIG, announced the fourth issuance of one- year commercial promissory notes by its subsidiary, Cemig Distribuição S.A (Cemig D).

The public distribution of the notes will involve issuance of eight R$12.5 million worth of notes, amounting to R$100 million. The notes will mature on December 22, 2012 and carry interest rates corresponding to 106% of the DI Rate, calculated and published by Cetip S.A. – the Organized Over-the-Counter Assets and Derivatives Market. CEMIG intends to use the funds raised to strengthen its working capital position.

Cemig is one of the largest integrated electric utilities in Brazil, which gives tough competition to its peers like Companhia Paranaense de Energia (ELP - Analyst Report).

We believe CEMIG is comfortably positioned to benefit from the rising demand for electricity in Brazil. Its integrated nature of activity (generating and distributing energy) along with its aggressive expansion plan is making its presence felt among the industrial customers both in the south and southeast of Brazil.

In the recently reported third quarter 2011 financial results, Cemig posted roughly an 11% year-over-year increase in revenue while consolidated net income in the quarter remained flat. Cemig D accounted for about 33.6% of Cemig’s total net income of R$657 million in the quarter.

The current Zacks Consensus earnings estimate for the fiscal years 2011 and 2012 are $1.64 and $2.07 per share. These represent a 20.16% year-over-year decline and 26.17% growth, respectively.

Growth momentum for the company remains restricted due to higher operating and financial expenses. Moreover, rising debt levels, persistent interference from the state government, competitive pressures in the Brazilian market and high dependence on natural water resources tend to be problematic.

We currently maintain a Neutral recommendation on the company.

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