Investing.com -- Fitch Ratings has revised the outlook for Centrais Eletricas Brasileiras S.A. (Eletrobras) from negative to stable, while affirming its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) and senior unsecured bonds at ’BB-’. The National Scale ratings for Eletrobras and its subsidiary Companhia Hidro Eletrica do Sao Francisco (Chesf) have also been affirmed at ’AA(bra)’.
The revised outlook is based on the group’s positive performance and the expectation of increased cash generation from the sale of uncontracted energy at improved prices. This should enable Eletrobras to maintain leverage in line with the current IDRs.
Fitch has considered Eletrobras’ significant and diversified asset base, which reduces operational and regulatory risks. The group’s EBITDA is expected to grow, benefiting from strong liquidity and a manageable debt maturity schedule. The rating for Chesf is equal to that of Eletrobras due to the medium-to-high incentives of support from the parent company.
Eletrobras’ strong EBITDA performance is expected to result in a leverage profile consistent with the current IDRs. Fitch projects net adjusted financial leverage, including off-balance guarantees, to range between 3.5x-4.0x until 2028, with 3.9x in 2025 and 3.5x in 2026.
Eletrobras, Brazil’s largest generation and transmission company, has a diversified business profile with 44 GW of installed generation capacity and 74,000 km of transmission lines. This reduces operational and regulatory risks for the group.
However, Fitch estimates a strong capex plan of BRL18.0 billion for Eletrobras in the 2025-2026 period, resulting in negative FCF of BRL6.7 billion and BRL860 million, respectively. This is expected to be offset by a robust liquidity position.
Eletrobras’ high uncontracted energy generation capacity exposes the group to energy price risk. Fitch expects that the energy becoming uncontracted from quotas regime will be sold at better prices than the current ones.
Fitch has equalized the National Scale ratings of Chesf and Eletrobras due to the medium to high set of legal, operational and strategic incentives for the controlling shareholder to support the subsidiary, if needed.
Eletrobras’ IDRs reflect its geographic concentration in Brazil, compared with its peers operating in higher rated countries in the region. Despite its larger size and asset diversification, Eletrobras’ ’BB-’ rating is two to three notches below the LC IDR of other Brazilian generation and transmission groups, due to its lower operating performance and weaker financial profile.
Eletrobras has higher gross and net leverage than most of its higher rated peers. Eletrobras’s expected gross and net leverage for 2025, 5.7x and 3.9x, respectively, compares to gross and net leverage of 3.7x and 3.2x for Engie Brasil, 4.2x and 3.7x for Taesa and 4.0x and 3.0x for Alupar.
Fitch’s key assumptions within the rating case for the issuer include annual energy sales of 16.0GW on average during 2025-2028, average sales price for the uncontracted capacity of BRL174/MWh in 2025, BRL192/MWh in 2026 and BRL186/MWh in 2027, and capex of BRL32.8 billion in 2025-2028.
Factors that could lead to a downgrade include total adjusted leverage above 6.0x or net adjusted leverage above 5.0x on a sustainable basis, higher pressure on expected FCF, deterioration of debt and liquidity profiles, continuity of a high uncontracted energy position, and increasing risk relative to off-balance-sheet guarantees.
On the other hand, factors that could lead to an upgrade include better than expected FCF trends, a decline in Eletrobras’ uncontracted energy position, and total adjusted leverage below 5.5x and net adjusted leverage below 4.0x on a sustainable basis.
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