June 3, 2016 / 9:37 PM / 2 years ago

UPDATE 1-Brazil government sees little chance of Eletrobras bailout

(Adds Oliveira comments on Eletrobras, economy)

By Alonso Soto and Marcela Ayres

BRASILIA, June 3 (Reuters) - The Brazilian government sees a low probability that it would need to capitalize indebted state energy holding company Eletrobras SA, acting Planning Minister Dyogo de Oliveira said on Friday.

He said the government was also reconsidering whether to transfer to Eletrobras 5 billion reais (US$1.42 billion) in proceeds from the auction of several hydroelectric plants last year. If the government keeps the money, it could help lower an expected primary budget deficit of 170.5 billion reais in 2016, Oliveira said.

Investors fear a potential delisting of Eletrobras’ shares in New York for failing to file financial information could prompt an early repayment of billions of dollars in debt and force the government to bail out the utility.

“We reached the conclusion that the possibility of a capitalization due to a delisting is low,” Oliveira told Reuters in an interview. He added that the company’s debt covenants have no clauses requiring an early repayment in case of a delisting.

Interim President Michel Temer, who has replaced President Dilma Rousseff while she stands impeachment trial in the Senate, has vowed to plug a massive fiscal shortfall that has cost the once-booming economy its coveted investment grade rating.

The government plans to sell some Eletrobras assets to help the company pay down heavy bills for the purchase of expensive thermal power after two years of droughts.

Eletrobras, the country’s largest electric utility, controls 15 subsidiaries in Brazil and has a 50-percent stake in the country’s largest hydroelectric dam Itaipu.

Eletrobras shares closed Friday up 2.2 percent, in line with the benchmark Bovespa stock index, with news of the low probability of capitalization accelerating gains at the end of the session.

Without the need to rescue Eletrobras and measures to control spending, Oliveira said the country’s finances could improve more rapidly if the economy also picks up steam.

Oliveira, a former deputy finance minister, said he believes the Brazilian economy could exit recession in the last quarter of this year.

He added that the economy could return to a growth rate of close to 3 percent by 2018.

Brazil’s economy shrank 0.3 percent in the first quarter from the fourth quarter, on track to record its worst recession in over a century. ($1 = 3.5242 Brazilian reais) (Editing by Mary Milliken)

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