Brazil Eletronet to File for Bankruptcy

Brazil Eletronet, a supplier of data transmission networks for telecommunications operators, has formally decided, in its last shareholders meeting, to file for bankruptcy protection. The decision was communicated to the CVM, the Brazilian Securities and Exchange Commission, on April 28, 2003.

The Brazilian energy sector is coordinated and integrated by Eletrobrás (Centrais Elétricas Brasileiras SA), a public company controlled by the Brazilian government and responsible, through its subsidiaries, for the production of nearly 60 percent of the total energy produced in the country. Eletrobrás’ subsidiary, Lightpar, has a 49 percent share of Eletronet, and AES Bandeirante has a 51 percent share. AES, which is also under considerable financial distress in Brazil, had its administration rights over Eletronet suspended in September 2002 because of its failure to pay in full its capital contribution of US$4.3 million. The suspension was ratified in the shareholders meeting.

When filing for bankruptcy, Eletronet will also request a preliminary order to continue operating. However, it is not yet clear whether the court will grant the order, considering that Eletronet has no means of proving its financial viability. Eletronet’s debts are nearly US$190 million. According to published accounts, the possibility of selling the company is remote. Potential buyers that have been cited in the press include GP Investimentos – which actually would be interested in signing an agreement to merge the transmission networks of Eletronet and Geodex – and the entrepreneur Nelson Tanure.

Currently, there is debate about the ultimate responsibility for Eletronet’s debts. Eletrobrás President Luiz Pinguelli Rosa, has claimed that it belongs to AES. Suppliers, however, argue that Eletrobrás is responsible for the debt, since it is a user of Eletronet’s cables. The Brazilian government attributes the responsibility to AES. However, suppliers of Eletronet have claimed that government-owned corporations participated in the management of Eletronet, and the government bears responsibility as well.