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Shares of Brazilian power company Companhia Energetica de Minas Gerais (CEMIG) (NYSE: CIG) opened trading down 10% today and were down 6% as of 11 a.m. EDT, after a court injunction that allowed the company to operate a hydroelectric dam was revoked.
Image source: Getty Images.
CEMIG has been in the process of trying to sell its stake in a few hydro dams to raise about $1.9 billion in capital. One of those dams is the Jaguara dam in the province of Minas Gerais. However, the Brazilian court just revoked a previously granted injunction that allowed the company to operate the dam. The reason for the revocation stems from negotiations with the company's union.
As you can imagine, this sort of thing really puts a wrench in CEMIG's plan to sell assets. While the company's current debt load isn't dire, it certainly is enough to be a constraint on making the necessary investments in its transmission and distribution network.
CEMIG is one of those siren-song investments: It's a regulated utility with a whopping 10% dividend yield. However, one thing to keep in mind is that the business is a public-private venture in which the local municipality owns half of the outstanding shares. In some cases, this can lead to a company trying to serve two purposes at the same time, when the needs of the state are different than the needs of investors. So it's no wonder that the company has struggled to generate consistent returns, even on a total-return basis, over the past decade:
Perhaps if the company can get these court issues resolved, sell the assets it needs to raise capital, and get back on track with its strategy, its prospects will improve. That said, there aren't a whole lot of reasons to think that CEMIG is a company worth putting too much faith in right now.
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