S&P: Brazil-Based Utility Cemig Outlook Revised To Positive On Likely Improving Credit Metrics, 'B' Ratings Affirmed

S&P Global Ratings revised its outlook on Companhia Energetica de Minas Gerais (Cemig) and on its operating subsidiaries, Cemig Distribuicao S. A. (Cemig D) and Cemig Geracao e Transmissao S. A. (Cemig GT) to positive from stable.

We also affirmed our 'B' global scale corporate credit on all three entities. In addition, we raised our national scale ratings on the companies to 'brBBB' from 'brBBB-'. The 'b' stand-alone credit profile (SACP) remains unchanged.

At the same time, we affirmed our 'B' issue-level ratings on Cemig GT's senior unsecured notes. We rate them at the same level as our corporate credit rating, given the issuance at the operating level and that priority debt ratio is less than 50%.

As we had expected, the company managed to refinance its maturing debt with a series of transactions at the end of 2017, including a capitalization. We now expect Cemig's credit metrics to gradually improve over the next few years, given the positive effect of the rate review for Cemig D. Nevertheless, in our view, a significant debt reduction will depend on the group's asset sales program.

Cemig D is currently undergoing its fourth rate review process, which should be concluded by May 2018. Preliminary figures released by the regulator point to a 25.87% readjustment, which incorporates not only higher energy costs in 2017 and an increase in sectorial charges, but also remunerates for the more than R$5 billion of investments that the company did in its network since 2013. This should help improve the group's overall operating performance and cash flows, but we believe a substantial debt reduction would only come once the group manages to divest some of its portfolio of assets. Last year, Cemig announced an R$8 billion divestiture program, which includes its stakes in Light S. A. (not rated) and in the Santo Antonio and Belo Monte hydro projects. Nevertheless, we acknowledge that the timing of these sales is uncertain because it depends on market conditions and investor appetite.
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