On the eve of starting debt restructuring, Light distributed almost BRL 100 million in dividends – 04/20/2023 – Market

About a month before announcing the hiring of consultancy Laplace to restructure its debt, Light paid, at the end of 2022, BRL 94 million in dividends to its shareholders. The portion referred to the profit of BRL 424 million recorded in 2021, in amounts corrected for inflation.

Benefiting from an injunction against early redemption of debts, Light distributed almost R$ 270 million in dividends in the last two years, equivalent to 80% of the accumulated in the previous six years, according to a survey carried out for the Sheet by Einar Rivero of TradeMap.

The company says that the dividends were approved in April and declared in fiscal year 2022. “On the payment deadline, the newly formed board followed the determination of the shareholders”, he said, through his press office.

The hiring of Laplace started a process of recognition of the company’s real situation, which announced in March a loss of BRL 5.6 billion in 2022 and, in April, asked the Justice for protection against the collection of up to BRL 11 billion in debts, alleging risk to its operations.

The scenario took investors and creditors by surprise, who saw the company in a position to fulfill its obligations in the two years it had left until a decision was reached on the renewal of its concession to serve 31 municipalities in Rio de Janeiro, which expires in 2026.

“There was a very strong change in the attitude of the company’s management in the fourth quarter, it was a surprise”, says analyst Ilan Arbetman, from Ativa Investimentos, who saw the company in conditions to fulfill its obligations until concluding negotiations with Aneel (Agência Nacional of Electric Power). .

The company alleges that it faces a structural problem, of operational restrictions in areas dominated by organized crime, which was aggravated by the high interest rates in the country, which cost it R$ 1.5 billion a year in debt services.

In addition, the approval of a law in 2022 determining the return of taxes charged to consumers, he says, eliminated “one of the sources of funds that covered the operating cash deficits” of its distribution operations.

“Light has been maintaining the quality of services and investments in expansion, but it is a company that does not provide adequate return to shareholders”, he says. “It has been sustained over the last ten years due to a strong increase in its debt and several capital increases.”

The company alleges that its distribution operations, carried out through Light SESA, received a contribution of R$ 3.4 billion from the holding company in the last ten years, almost six times the R$ 674 million that it returned in dividends.

Made through tariff discounts, the refund of PIS/Cofins affected the entire energy sector, but had a greater impact on the company: according to Fitch, in June 2022 it was equivalent to 40% of its Ebitda, an indicator that measures the generation of cash, much more than the 15% to 18% of competitors such as Cemig, Enel and Equatorial.

While other companies began to return funds earlier or accounted for any losses on their balance sheets, Light resorted to Aneel and the courts to try to escape. The company says this is “a complex legal matter” and that it “followed the recommendation of its legal advisors”.

Creditors, however, argue that the strategy of recent months was aimed at pressuring authorities and funds to yield, given the imminent risk to operations. They claim that new funding was offered at the end of 2022 and accuse the company of avoiding dialogue.

In a petition to overturn the judicial protection, they classify the company’s legal strategy as “an unusual model of default”, since public service concessionaires cannot file for judicial recovery.

“What generates indignation in the creditor is changing the rule in the middle of the game”, he told Sheet lawyer José Roberto de Castro Neves, a partner at FCDG Advogados, who advises a group of 26 managers with R$ 4.7 billion in Light debentures.

They also question the proposal to include the financial restructuring among the goals that will define the compensation of the company’s executives in 2023, which will be evaluated at a shareholders’ meeting on the 28th.

The board’s variable compensation proposal provides for the payment of stock options equivalent to up to 5% of the company’s capital in the event of compliance with all targets.

Light claims that the financing offers it received would not even cover the needs of the first half of 2023. “It was clear to the newly formed board that any debt issuance by the company should be part of a definitive long-term solution.”

Regarding variable remuneration, he says that “the readjustment of the capital structure is necessary for the survival of the company”, which has more than R$ 7 billion in cash need between 2023 and 2024.

The board, he says, “has the objective of preserving the concession, guaranteeing the continuity, quality and expansion of the energy service”. “This is the only way to create value for creditors and shareholders.”

In order to renew the concession, which would allow it to extend the term of its debt, the distributor debates with Aneel more favorable conditions for calculating losses from energy theft.

“Light is looking for a new concession contract that reflects the specific characteristics of Rio”, he says. Combating energy theft in ASROs [áreas de severa restrição operacional]highly violent areas dominated by parallel powers, is not within the distributor’s realistic scope of action.”