The Bovespa (IBOV) index fell as Centrais Eletricas Brasileiras SA (ELET6) plunged to a 17-year low on concern that the government’s plan to lower electricity costs will hurt the company’s profits.
PDG Realty SA Empreendimentos & Participacoes sank to a three-year low after Moody’s Investors Service placed the homebuilder’s rating under review for a possible cut. MMX Mineracao & Metalicos SA, the iron-ore producer controlled by billionaire Eike Batista, fell as metals declined.
The Bovespa lost 0.4 percent to 56,242.12 at the close of trading in Sao Paulo. Eletrobras, as Centrais Eletricas Brasileiras is also known, tumbled the most on the gauge while 35 stocks retreated and 32 gained. The real fell 0.8 percent to 2.0962 per U.S. dollar at 5:40 p.m. local time, the weakest on a closing basis since May 2009.
“Some utilities will have the option of not following the government’s guidelines, but Eletrobras will be the company used by the government to reach whatever goals they have,” Marc Sauerman, who helps oversee 650 million reais at J Malucelli Investimentos in Curitiba, Brazil, said in a phone interview. “Some stocks in the electrical sector may be attractive now after recent losses, but for Eletrobras, it’s hard to say how much further down shares can go.”
Brazil is pushing utilities with generation and transmission licenses expiring in 2015 and 2017 to cut rates in exchange for automatic renewals, an attempt to curb inflation and help companies become more competitive. The company may sacrifice profits to help achieve those goals, Sauerman said. Eletrobras is controlled by the federal government, and its chairman is Deputy Energy Minister Marcio Zimmermann.
Voting shares of Eletrobras dropped 16 percent to 6.75 reais, the lowest level since March 1995. The stock has fallen 42 percent since Nov. 1, when the government published its contract renewals proposal. The preferred shares fell a record 20 percent to a 10-year low today and are down 53 percent since the beginning of this month.
The plan will almost erase earnings before interest, taxes, depreciation and amortization, or Ebitda, next year, the utility’s Chief Financial Officer Armando Casado de Araujo said on a conference call Nov. 19.
PDG Realty slid 4.8 percent to 2.81 reais, the lowest closing price since March 2009. Moody’s said in a statement late yesterday that there is “a significant deterioration in the company’s credit metrics due to weaker than expected profitability.”
The homebuilder reported on Nov. 15 that third-quarter earnings sank to 3 centavos per share from 23 centavos a year earlier, below the average estimate of 5 centavos of four analysts surveyed by Bloomberg.
Brazil’s benchmark equity measure advanced earlier today as much as 0.6 percent as the real’s decline boosted the outlook for exporters.
BRF Brasil Foods SA, the world’s biggest poultry exporter, gained 2.3 percent to 38.88 reais, the highest on record. Planemaker Embraer SA climbed 2.6 percent to 14.17 reais.
“If the currency holds near current levels for longer, it would surely be positive for exporters,” Hamilton Moreira, an equity strategist at Banco do Brasil SA, said by phone from Sao Paulo. “In the short term, a weaker real also makes stocks cheaper in dollar terms, which could attract foreign investors.”
The Bovespa has climbed 7.2 percent from this year’s low on June 5 as stimulus from central banks around the world eased economic concern and borrowing costs at a record low in Brazil boosted demand for equities.
Trading volume was 7.21 billion reais in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average of 7.2 billion reais this year through Nov. 19, according to data compiled by BM&FBovespa. The exchange was closed yesterday for a holiday in Sao Paulo.
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