Light

Investor Relations

Risk Factors

An investment in securities involves a high degree of risk. All investors should carefully consider the following factors in addition to the other information in this investor relations website before investing in Light's securities. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers or issuers in other countries with highly developed capital markets. Light's business, financial condition, results of operations and prospects may be materially adversely affected by any of these risks.

The risks briefly described below are those that the Company currently believes most likely may materially affect its performance.

Risks Relating to Brazil and to Macroeconomic Factors

  • The Federal Government exercised and continues exercising significant influence over the Brazilian economy. Unfavorable political and economic conditions may cause an adverse effect to the Company.
  • The political instability may impair the results of operations and the price of securities issued by the Company.
  • The exchange rate fluctuation may impair the financial condition, the results of operations and the securities issued by the Company.
  • The Company may be adversely affected by the federal government's monetary policy and/or increase in interest rates.
  • Inflation and federal government's measures to restrain it may adversely affect the Brazilian economy and the Brazilian securities market, as well as the conduction of the Company's business.
  • Political, economic and social events and the perception of risks in other countries, especially emerging economies, may adversely affect the Brazilian economy and the Company.
  • Changes in Brazilian tax laws may have adverse impact on the Company's results of operations.

Risks Relating to the Industry

  • The Company operates in the Brazilian electricity sector, which was restructured by the Federal Government. The effects of New Model of Electricity Sector for companies subject to its rules, such as the Company, are still uncertain.
  • The Company is subject to comprehensive laws and regulations imposed by the Federal Government, and it cannot foresee the effects of eventual changes in regulations now effective over its businesses and results of operations.
  • The Company's financial condition and results of operations may be negatively affected by should ANEEL do not approve the adjustments of its distribution tariffs under satisfactory terms for the Company.
  • Even the granting of adjustments of Company's tariffs by ANEEL, under satisfactory terms to the Company, these adjustments are subject to legal challenges.
  • The Company may be given a penalty by ANEEL due to failure to comply with obligations contained in the Concession Agreement and electricity sector laws, which may result in fines and other penalties and in last case, the forfeiture of concession, by means of administrative proceeding.
  • The concession, by means of which the Company is authorized to carry out electric power distribution activities, is subject to extinguishment under certain circumstances, and the Company may not be able to recover the full amount invested should such concession be extinguished.
  • Incorrect estimates of energy demand for the Company's concession areas may adversely affect its results of operations. The Company may not be able to fully transfer, by means of its tariffs, the energy purchase costs due to the need of acquisition of electric power by means of short-term agreements.
  • A new power rationing, in view of lack of investments in expanding energy generation capacity and/or adverse hydrologic conditions may negatively affect sales and the Company's cash generation.
  • The Company may not fully recover the losses resulting from electric power shortage and corresponding electric power rationing occurred in 2001 and 2002.
  • The Company is objectively responsible for any losses resulting from the inadequate rendering of electric power distribution services. The Company's insurance policies may not fully cover eventual losses resulting from the inadequate rendering of electric power distribution services.
  • The Company is subject to various environmental laws and regulations which may become more rigid in the future and result in higher liabilities and higher capital investments.
  • In view that substantial portion of the Company's assets is devoted to the supply of basic public utility, these assets will not be available for liquidation in the event of bankruptcy, and will not be subject to seizure for guarantee in court.
  • The Company acquires significant portion of its energy from thermoelectric power plant, which employs gas to produce energy to be traded. The prospect of shortage in the supply of natural gas in the Brazilian market as a result of political crisis between the governments of Brazil and Bolivia may affect the thermoelectric power plants, and indirectly, and accordingly, the Company.
  • The bill to Reform the Regulatory Agencies under progress in the Brazilian Congress may affect the authority of ANEEL.

Risks Related to the Company

  • The Company may suffer reduction of its revenues, should its consumers become Free Consumers not served by the Company, self-producers or for any other reason no longer purchase electric power from the Company.
  • The Law of New Model of Electricity Sector requires the Company to change the form how it purchases its energy.
  • The Company's results may be affected by increased payment in arrears and delinquency of its consumers.
  • Should the Company do not manage to successfully control energy losses, its results of operations and financial condition may be adversely affected.
  • Alterations in the development policy of Federal Government and/or Company's difficulties in raising funds may restrict or hinder the refinancing of its debt, its ability of investing and the implementation of its development strategy.
  • The Company is subject to risks related to legal and administrative disputes, which may adversely affect its results.
  • The Company is subject to various health and safety laws and regulations, which may become more severe in the future and which may result in increase of liabilities and cash outlays.
  • The failure to comply with services standards established by ANEEL may subject the Company to penalties.
  • The outsourcing of substantial part of the Company's activities may cause adverse results to the Company.
  • The Company is required to carry out significant cash outlays in order to fulfill the program Luz para Todos, created by the federal government. The failure to comply with targets imposed by this program or the lack of financing in amount and favorable conditions may adversely affect the Company.
  • The loan agreements entered into by the Company include restrictive covenants and any default resulting from the failure to comply with these clauses may adversely affect its financial condition and its ability to conduct businesses.
  • Eventual questioning to be raised in relation to foreign loan operations of the Company and its subsidiaries LOI and LIR (in this last case involving Deutsche Bank), as well as eventual early payment of this debt with LIR to be requested by Deutsche Bank, may adversely affect the Company's financial condition.
  • The funds allocated by the Company in order to comply with its social security liabilities may be lower than the amount estimated of these liabilities, and thus, the Company perhaps needs to provide additional contributions to the supplementary private pension plans of its employees.
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