Eon files for bankruptcy in Brazil

Eon’s Brazilian business Eneva filed for bankruptcy overnight, raising concern over how the German energy giant will restructure the business ahead of its recently announced operations split.

The bankruptcy petition protects Eneva, which is 43 per cent owned by Eon, for a period of 60 days, during which time it will undergo a restructuring that could impact Eon’s plans to spin-off some of its operations into the so-called New Company.

NewCo will take over Eon’s existing upstream and thermal generation operations in addition to business interests in Brazil and Russia to leave the utility able to focus on its customer-facing business alongside renewables and new technologies.

The recently announced strategy overhaul will begin in 2015 in order to set up a public listing for NewCo, which will be fully implemented by 2016. Although Eon will maintain a minority share in the company initially, in the medium term it intends to sell the shares, it said.

“Given the [bankruptcy] filing, we believe Eneva does not enhance the value proposition of NewCo. It isn’t immediately clear if Eon will continue to have a role in Eneva post the restructuring,” said an investor note from Citigroup Wednesday morning.

Analysts at RBC Capital added: “The question now is whether Eon will be forced to inject more capital (as it previously did in May 2014), but this may lead to full consolidation. Otherwise Eon may have to walk away.”

RBC Capital said that part of Eneva’s restructuring plan is likely to include the sale of its 50 per cent stake in the Pecem power plant to Portugese energy company EDP. Neither the Pecem 1 or Pecem 2 power plants are included in the bankruptcy filing.

“If Eneva emerges more stabilised post-restructuring with limited shareholder dilution to Eon then an exit is less likely in our view. We do not see Eon injecting new capital into Eneva or any other regional developments for now either,” RBC Capital added.

In a statement Wednesday morning Eon said Eneva had suffered from a lack of liquidity, caused by operational issues, a stressed market environment post droughts, and high levels of debt and interest.

Eon said it did not expect the restructuring process to have any material effect on its 2014 profits or its underlying net income.