By Brazil Stock Guide – Equatorial Energia S.A. (B3: EQTL3) is banking on a R$9.4 billion ($1.8 billion) transmission sale to reduce leverage from 5.6x in mid-2025 to 4.5x by year-end. The transaction, cleared by regulators and pending creditor approval in the fourth quarter, is seen by S&P as a turning point to reinforce liquidity and stabilize the balance sheet.
The deal involves selling assets to Infraestrutura e Energia Brasil S.A., with R$5.2 billion in equity and R$4.2 billion in assumed debt. S&P reaffirmed Equatorial’s national rating at brAAA, stable outlook. The group expects annual EBITDA of R$11–12 billion ($2.1–2.3 billion) with margins close to 30%.
Equatorial is also pouring money into expansion. Spending is set to reach about R$8.5 billion ($1.65 billion) in 2025 and remain high in the following years. That will keep cash tight, but S&P notes part of the proceeds from the sale could be returned to investors through extraordinary dividends.
“Divestment will improve Equatorial’s leverage and strengthen liquidity, even with investment at historically high levels,” S&P wrote in its report.
Distribution strength and diversification
Distribution remains the core, with seven utilities serving 14.6 million customers and billing 55,168 GWh in the 12 months through June 2025. Automatic cost pass-throughs and tariff hikes, in some cases above inflation, sustain margins. Diversification includes 1,777 MW in renewables via Echoenergia, sanitation through CSA Amapá, and a 15% stake in Sabesp, São Paulo’s water utility, whose dividends flow into Equatorial’s EBITDA.
What’s at stake
The sale eases debt but raises questions about how Equatorial will deploy capital. S&P noted the company may use proceeds for dividends, while also pointing to the challenges of sustaining growth with heavy spending. Net debt/EBITDA covenants capped at 4.5x still leave a 15–25% buffer before acceleration clauses kick in.
Winners and losers
Shareholders could benefit from a one-off dividend, while bondholders see improved coverage. The losers may be peers facing higher competition in distribution, where Equatorial keeps gaining market share.
S&P warned that leverage above 5.5x or funds from operations below 9% of debt could trigger a downgrade. Still, with transmission sold and distribution driving cash generation, Equatorial’s balance sheet looks more resilient heading into 2026.
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