AES Corp To Sell Brazil Unit To CPFL Energia For $464 Million

The AES Corporation (NYSE:AES) has signed an agreement to sell its entire equity interest in AES Sul in southern Brazil to CPFL Energia S.A. (NYSE:CPL) , the largest private utility in the country.

The transaction, valued at BRL1.698 billion or $464 million (based on the estimated BRL/USD conversion rate of 3.66 at the time of closing), is expected to close in the latter half of 2016. It, however, needs to be approved by CPFL Energia's shareholders and customary regulators first.

The transaction will allow AES Corp. to reduce almost $335 million in non-recourse debt on its balance sheet as of Mar 31, 2016. The company had mentioned a potential sale of its Brazilian utility while providing its 2016 guidance and projections for the 2017–2018 period.

According to AES Corp.’s President and Chief Executive Officer, Andrés Gluski, the latest spin-off is aimed to improve the company’s portfolio for “future value creation”. Over the last 19 years, the company has been working hard to improve safety, systems and operations at Sul. However, at present, management feels that shareholders would be served better by reducing risk and deploying capital in other businesses.

AES Sul is one of the company’s utilities in Brazil. AES Corp. also owns the largest electricity distributor in Brazil, AES Eletropaulo. Note that the company is planning to sell the Sao Paulo-based state distributor as well.

The latest announcement reflects AES Corp.’s continued efforts to streamline its portfolio through asset divestments, and by exiting markets and businesses where it does not have or cannot develop a competitive advantage. The company follows a strategy of reducing complexity and portfolio simplification through the withdrawal of operations in markets that have certain risks.

AES Corp. currently has a Zacks Rank #4 (Sell).

Stocks to Consider

A couple of better-ranked stocks in the utility space include Spark Energy, Inc. (NASDAQ:SPKE) and CenterPoint Energy, Inc. (NYSE:CNP) . Spark Energy sports a Zacks Rank #1 (Strong Buy), while CenterPoint Energy carries a Zacks Rank #2 (Buy).

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