Fitch Revises Outlook for Eletrobras and Furnas's IDRs to Positive

Wednesday, Jun 30, 2010

Fitch Ratings has revised the Rating Outlook on the 'BBB-' local and foreign currency Issuer Default Ratings (IDRs) of Centrais Eletricas Brasileiras (Eletrobras) and its wholly owned subsidiary, Furnas Centrais Eletricas S.A. (Furnas) to Positive from Stable. At the same time, the agency upgraded Furnas's long-term national scale rating to 'AA+(bra)' from 'AA(bra)', and also revised its Outlook to Positive from Stable. Eletrobras' bonds issuance due 2019 was affirmed at 'BBB-'.

These rating actions follow the revision of the Rating Outlook to Positive from Stable of Brazil's long-term foreign and local currency IDRs at 'BBB-' on June 27, 2010.

The Outlook revision of Brazil's long-term foreign and local currency IDRs reflects the country's better-than-expected resilience and economic performance in the face of the global recession, which together with its relatively prudent economic policies should allow the Brazilian per capita income and fiscal solvency ratios to improve steadily during the forecast period. Fitch does not expect a significant change in the main thrust of economic policies following the October presidential elections.

Eletrobras' ratings reflect its linkage with Brazil. The company has a strong position as the largest electricity generation and transmission company in the country, representing 38% of installed generation capacity and 56% of transmission lines. The company's size makes it strategically important to the country's economy and development. Eletrobras is exposed to political interference risks, given its status as an entity controlled by the Brazilian government. At times, it utilizes Eletrobras to help it achieve certain macroeconomic and social objectives through price controls and/or subsidies and regulatory financings, which underscore its linkage to the sovereign. Eletrobras' budget is incorporated into the Government's budget, which is annually approved by the Congress. In the last 12 months ended on March 31, 2010, Eletrobras' net revenues were BRL24 billion, with EBITDA of BRL5.1 billion. The net debt-to-EBITDA ratio was 3.1 times.

Furnas's ratings reflect its linkage with its parent company (Eletrobras). Furnas is one of the largest companies in the Eletrobras group, representing approximately 25% of the group's installed generation capacity and 32% of its transmission coverage in kilometers. Eletrobras has a centralized cash management policy and is the primary funding provider for Furnas. Furthermore, it also sets strategic targets such as corporate governance standards and investment plans.

Source: Business Wire