1. Objective
This document establishes a Risk Management Policy arising from the Financial Market (“RMP” or “Policy”) for Energisa S.A. (“Company”) and its direct and/or indirect subsidiaries, in accordance with best market practices, aligning strategic objectives and addressing limits on a consolidated basis, in order to measure the sum of risks associated with the Company and its controlled entities (collectively referred to as the “Energisa Group” or “Group”).
The RMP will be available on the Company’s website, ensuring broad access to interested parties (commercial, credit, investment counterparties, and rating agencies).
This is the fourteenth version of the RMP since its first publication in May 2009, which once again adapts to the macroeconomic and sectoral context, while preserving the main guideline of providing transparency, demonstrating prudence, and predictability in the financial management of the Energisa Group.
The Energisa Group must have a separate risk management policy (distinct from the RMP) for its subsidiary Energisa Comercializadora de Energia Ltda, to be approved by the Company’s executive board, conducted by a committee of specialists appointed by the board, and subject to review and monitoring as determined by the audit and risk committee of the Board of Directors.
2. Validity
This policy shall remain valid until May 31, 2027, and may be reviewed at any time in the event of improvements that ensure its purpose.
3. Management Finacial Risks
In summary, the financial market risk management of the Energisa Group can be characterized as follows:
a) Focus:
- Risks arising from the financial market in general;
b) Fundamentals:
- Risk management is a process, not an isolated event, and should involve various areas of the company (legal, financial, and risk control);
- The implementation of risk management must be discussed, approved, and periodically reviewed by the Board of Directors, based on recommendations from the Financial Vice Presidency;
- Risk management requires the dissemination of a risk culture, the pursuit of best practices, and the continuous involvement of employees;
- The Company has a Risk and Compliance Management department, created with the purpose of monitoring risks that may adversely impact the Energisa Group.
c) Components of the financial market risk management policy:
- Definition of decision-making bodies for Energisa Group operations;
- Definition of responsibilities for each hierarchical level, as well as their respective authorities;
- Definition of acceptable risk limits for the Energisa Group, consistent with the shareholders’ risk appetite and aimed at optimizing the risk-return ratio, to be approved by the Board of Directors;
- Implementation of the risk management process: risk policy, identification, prioritization and measurement of risk magnitude and probability, control activities, information, communication, and monitoring.
d) Management process:
The main stages of the risk management process are presented below:
- Measurement of risks, results, and probability of occurrence;
- Preliminary analysis of alternative evaluations;
- Definition of the policy;
- Execution, information, and communication, aimed at risk prevention and mitigation;
- Monitoring and control.
e) Organization for financial market risk management:
The financial market risk management process is the responsibility of the Financial Vice Presidency, with advisory support from the Financial Market Risk Management Committee (“Committee”), which is responsible for evaluating operations, processes, and procedures and proposing the best alternatives.
This committee may propose operations to the Financial Vice Presidency for evaluation and, if necessary, approval by the Board of Directors.
The Financial Market Risk Management Committee shall meet at least quarterly, and extraordinary meetings may be convened based on specific needs. The committee shall be composed of the Chief Financial Officer of Energisa S.A., who must appoint at least two (2) additional members, with at least one member being an External Consultant specialized in risk management, particularly in cash flow and debt risks.
The External Consultant shall be responsible for validating the Quarterly Monitoring Report of the “Financial Market Risk Management Policy” (“Quarterly Monitoring Report”), which must confirm compliance with the Policy, any necessary or current waivers, and recommendations for adjustments, if needed. Once validated, this Report shall be forwarded to the Committee members.
The Committee shall periodically seek independent support from specialists in macroeconomics and the financial market.
f) Financial risk management model
The Financial Vice Presidency, supported by the Committee, daily reports prepared by independent consultants, and the Quarterly Monitoring Report, shall be responsible for managing the Energisa Group’s risk exposure, making decisions regarding financial operations. Such operations must always comply with the parameters defined in this policy and observe the authorities established in the Bylaws and Internal Regulations of the Executive Boards.
At least once a year, the aforementioned report shall be reviewed by the Audit and Risk Committee of the Board of Directors. Internal Audit shall maintain constant oversight to ensure the Group’s compliance with the policy.
Financial operations shall be contracted in accordance with the internal procedures of the Energisa Group, which will establish the minimum number of financial institutions to be consulted (when applicable), the approval authorities, and the necessary formalizations.
4. SOURCES OF RISK
This chapter will detail the sources of financial risks to be addressed.
a) Debt
Debt includes all loan and financing operations of the Energisa Group, such as liabilities issued in domestic and international financial markets, as well as installment payments and contingent liabilities.
b) Financial Investments
The financial investments of the Energisa Group include all financial investments made, including short-, medium-, and long-term operations. Examples of financial investments include investments in investment funds, federal government bonds, and securities issued by financial institutions or public and private companies in domestic and international markets.
c) Derivatives
To eliminate certain exposures to indexes subject to adverse fluctuations and to control result volatility, the Energisa Group may structure various derivative strategies. Derivative operations may also be structured to adopt directional positions for investments: assets/liabilities at fixed or floating rates (inflation, interest rates).
The Energisa Group must have a hedge management policy, to be approved by the Company’s executive board, for the acquisition of materials and services denominated in foreign currencies, to be conducted by specialists appointed by the board.
d) Financial guarantees granted
Financial guarantees provided aim to ensure defense in legal proceedings (labor, civil, tax, environmental, etc.), as well as to enhance attractiveness and contractual conditions with suppliers, financiers, and investors in operations with the Energisa Group.
Given the strong risk profile of the Energisa Group companies, reflected in their credit ratings, the establishment of real guarantees should be avoided. Energisa S.A. may provide surety or endorsement in operations involving its subsidiaries to reduce their funding costs.
Any guarantees to be provided must be formally approved via email by the requesting area’s Director and the Corporate Finance Director, except for:
- (i) Guarantees required by contracts signed by legal representatives and currently in effect;
- (ii) Guarantees required by regulatory contracts;
- (iii) Guarantees for Energisa Comercializadora de Energia Ltda that fall under the Credit Policy of said company.
If it is not possible to avoid the use of guarantees in Energisa Group operations, the following order of preference should be observed:
- (i) Surety or endorsement by Energisa S.A.;
- (ii) Surety insurance;
- (iii) Bank guarantee;
- (iv) Security deposit;
- (v) Other possible guarantees.
e) Funds In Checking Accounts
The amounts used by the treasury departments of the Group’s companies for general payments and receipts may be transacted through financial institutions that operate as Banking as a Service (BaaS) for Energisa Group companies, provided that such institutions are previously approved by the Financial Market Risk Management Committee.
It is prohibited to maintain balances in BaaS accounts credited before the closing time of the Group companies’ Treasury operations, which is 4:30 p.m.
5. Monitoring and Management
This section addresses the monitoring of the financial risks considered. It details the control methods suggested by this Policy, as well as the specific considerations for each type of risk.
5.1 Indebtedness
The Energisa Group will seek to control its debt based on quantity, average duration, cost, guarantees, and choice of creditors (considering quality and concentration). Although debt can benefit a capital structure, limiting the amount of debt is necessary to avoid excessive leverage of the project/company and to reduce the risk of breaching financial covenants, which are present in most financial contracts.
Additionally, limiting debt aims to reduce refinancing risk by aligning it with the project/company’s cash generation, avoiding negative perceptions from capital markets and rating agencies regarding associated risks, and thus preserving credit quality.
Another aspect to be monitored is the distribution of debt by creditor. The Energisa Group, to the extent possible and considering the high concentration of the Brazilian market, may establish debt limits per creditor, aiming to avoid concentration (facilitating access to credit through broader reach), and seeking alternatives that offer lower cost, longer duration, and fewer financial and operational restrictions (covenants).
Any debt contracting must observe:
- (iv) adherence to the approved budget;
- (v) the Internal Regulations of the Executive Board, which establish the authority of the Company’s executives to contract operations;
- (vi) specific approvals from the Board of Directors, when necessary, already reflecting the main conditions of the contracts to be signed;
- (vii) approvals from regulatory bodies, when necessary for the linkage of concession guarantees.
Debt management must aim to comply with the following limits:
- The leverage limit will be defined by the Total Net Debt / Adjusted EBITDA indicator for the last 12 months (“Net Debt Limit”), as described in the most recent market debt issuance. In cases of asset/company acquisitions or even asset/company discontinuations, pro forma Debt and EBITDA figures should be constructed to provide a fairer ratio for this assessment.
- Consolidated Net Debt Limit: For the validity period of this revision, the limit should reflect a maximum leverage of 4.0x, with a desirable level of 3.5x.
Exceeding this limit will be allowed in specific situations such as asset acquisitions or significant investments in projects, provided they are preceded by approval from the Board of Directors. In such cases, a cure period of up to 36 months will be adopted. - Additionally, Energisa should aim to maintain minimum corporate credit ratings equivalent to BB- (Fitch, Moody’s and/or S&P) on a global scale and AA- (Fitch, Moody’s and/or S&P) on a national scale, or one notch below Brazil’s sovereign rating, whichever is lower.
- The limits presented above must always comply with the covenants established in financing contracts and debt issuances in both domestic and international markets.
The Financial Vice Presidency must monitor the leverage limits of the electricity distribution companies controlled by the Company, ensuring they remain aligned with regulatory leverage and the commitments made with the Regulator.
- Aim to maintain a consolidated net debt average term of more than four (4) years, which will naturally depend on market conditions for new issuances.
Bridge loan operations may be contracted with the intention of future placement under better terms, always respecting the maximum leverage limits.
- Considering the attractiveness of the rates offered by these agents, prioritize leverage with development banks and long-term creditors, aiming for a more appropriate average cost of third-party capital and duration for companies in the infrastructure sector;
- Development banks, under normal market conditions, operate with maximum exposure limits equivalent to 30% of the Total Assets of financed companies and/or economic groups, for rating levels equivalent to the Company’s, which should be pursued while observing the Leverage Limit and the conditions offered by the respective development banks;
- The Energisa Group should prioritize capital market operations over direct financing contracted with commercial banks. The Company should aim for greater diversification of its debt, avoiding exposure concentration. Preference should be given to unsecured (“clean”) operations, especially avoiding the assignment of receivables as collateral. The assignment of receivables as collateral may be used as a tool to reduce financing costs or ensure feasibility during periods of scarce and expensive credit. Unless there are truly differentiated conditions or a requirement from the creditor for such operations with development financial institutions, the lowest possible exposure should be pursued, maintaining at least 30% of receivables unencumbered at all times;
- Personal guarantees from executives or shareholders should not be practiced, in order to ensure the operational and financial independence of the companies;
- Energisa S.A. may provide guarantees for financial operations of its subsidiaries to reduce their funding costs;
- It is important to promote the presence of the Energisa Group in all capital markets, including international ones, while limiting exposure to foreign currencies to 25% of the total amount of interest-bearing debt. Any deviations from this limit must be adjusted within 120 days, either by reducing the stock of foreign currency debt or by contracting financial derivative instruments that neutralize the effects of adverse exchange rate movements. Foreign currency operations with plain vanilla swaps are not considered foreign exchange exposure operations and should seek “hedge accounting” or “fair value hedge” to limit balance sheet volatility.
5.2 Financial Investments
The control of the Energisa Group’s financial investments aims to mitigate counterparty risk, that is, the risk associated with the possibility that an entity may fail to meet its payment obligations.
The limits outlined below must be observed for both direct investments and exclusive investment funds in which the Energisa Group invests, and should be considered on a consolidated basis.
ENERGISA continuously monitors the composition of both exclusive and non-exclusive investment funds that make up the resource allocation portfolio. By becoming a shareholder in a non-exclusive investment fund, ENERGISA delegates the management of the investment portfolio, respecting the manager’s discretion (in accordance with the fund’s restrictions and investment policy).
Occasionally, some investments made by managers of non-exclusive funds may present discrepancies with the limits and rules defined in this Investment Policy. In such cases, ENERGISA must evaluate, as part of its monitoring process, the appropriate actions and procedures for redeeming or maintaining the investment.
- Investments will be permitted in Federal Government Bonds, CDBs (Bank Deposit Certificates), RDBs (Bank Receipts), Financial Bills, interest-bearing checking accounts, repurchase agreements, investments that are ancillary obligations established in Financing Contracts (when applicable), debentures, investment funds (subject to the limitation presented below), and others, provided they are approved by the Risk Management Committee.
Investments in redeemable shares, subordinated debt (except for subordinated tranches of FIDCs from the Energisa Group itself and subordinated CDBs/Financial Bills from top-tier banks with ratings equivalent to AAA (S&P/Fitch) or Aaa (Moody’s), or with sovereign rating equivalent (Brazil National Scale), observing a maximum duration of two years), and quasi-equity instruments (such as preferred shares with fixed dividends, as practiced in the U.S.) will not be permitted; - The acquisition of debentures must be approved on a case-by-case basis by the Risk Management Committee;
- Investments in private securities issued by electricity sector concessionaires directly or indirectly controlled by Energisa will only be permitted if in compliance with the specific regulations of the Brazilian Electricity Regulatory Agency (“ANEEL”) and subject to prior evaluation by the Regulatory Vice Presidency of the Energisa Group. Investments are permitted in private securities issued by suppliers (vendor risk) and/or consumers, including in cases of refinancing, installment plans, or any other form of debt renegotiation with suppliers and/or consumers of the Energisa Group, through the structuring of debt securities or backing based on existing commercial positions.
- Minimum Rating Limit for Banks: A rating equivalent to A+ (Local) or equal to the local sovereign rating, whichever is lower, must be observed, always considering the lowest available rating when more than one agency covers the institution.
In the case of foreign banks that formally support their Brazilian branches or subsidiaries, they may be considered provided that the global rating of the parent company is at least A-. - Minimum Rating Limit for Companies: AA- or equal to the local sovereign rating, whichever is lower, always considering the lowest available rating when more than one agency provides coverage.
- Only ratings issued by S&P, Moody’s and Fitch should be considered.
As investment funds typically do not have ratings, the following criteria must be observed:
(i) Investments must be made with asset managers that have over R$5 billion in assets under management;
(ii) The funds must be administered by financial institutions with recognized experience in the Brazilian market;
(iii) Energisa must have access to the fund’s portfolio composition, in order to assess compliance with this policy.
- Maximum Concentration per Bank or Company: R$1 billion or up to 30% (thirty percent), whichever is lower, of the total amount invested by the Energisa Group in the case of banks with a sovereign rating equivalent (Brazil National Scale). R$200 million or up to 10% (ten percent), whichever is lower, of the total amount invested in the case of banks with a rating one notch below the sovereign rating, considering the lowest available rating. Additionally, up to 15% (fifteen percent) for corporate debt securities, subject to the limits outlined below;
- Concentration Limit: A limit of 5% (five percent) of the net equity of the financial institution or company, based on the most recent quarterly financial statement, must be observed. For investment funds, the concentration limit must be 15% (fifteen percent) of the fund’s equity, to be observed at all times, except in the case of exclusive funds established by the Company itself. Alternatively, if the CDB or RDB operation is in the DPGE modality, investments may be made up to the guaranteed limit, currently set at R$20 million for the total investments in this modality per CNPJ, while respecting the maximum exposure of 5% in relation to the bank’s net equity. All formalization procedures must be followed to ensure the effectiveness of the guarantee provided by the National Treasury and/or the Credit Guarantee Fund (“FGC”) for the DPGE modality;
- Financial investments with a liquidity unavailability duration longer than two (2) years must receive specific approval from the Risk Management Committee, except in the case of federal government bonds or sovereign bonds from countries with a credit rating higher than Brazil’s;
- Any other eventual concessions to be established must be approved by the Board of Directors;
- Investments in funds must observe the following additional limits:
(i) DI-Referenced Funds – only the concentration limits mentioned above must be observed;
(ii) Fixed Income Funds – R$500 million or up to 25% (twenty-five percent) of the fund’s equity, whichever is lower, to be observed at all times, except in the case of exclusive funds established by the Company itself;
(iii) Multimarket Funds – R$500 million or up to 20% (twenty percent) of the fund’s equity, whichever is lower, except for exclusive funds established by the Company itself;
(iv) Equity Funds and Currency Funds – should not be used, except as a hedge for a corresponding liability position;
(v) Fund of Funds and Mixed Funds – must observe the limitations above, based on the treatment of the originating funds.
5.3 Derivatives
The structuring of derivative operations is important for mitigating risks related to adverse effects associated with the financial market.
Due to market price, liquidity, and counterparty risks, these operations must be monitored daily by independent consultants specialized in cash flow and debt risk.
The Energisa Group must hire an independent specialized service whenever there are debts in foreign currency or positions in financial derivative instruments, and must comply with the following limits and principles:
- As long as there are foreign currency financings, the Energisa Group should preferably seek protection mechanisms or currency swaps for its debt through “plain vanilla” operations. If such protection is not available at a reasonable cost, the minimum hedge and/or exchange rate swap coverage must be 85% of the foreign currency debt notional, limited to 100% of that debt (leverage is not permitted);
- The maximum amount contracted in interest rate swap operations (fixed rates, CDI, IPCA, among others) must comply with 100% of the notional limit of Financial Investments and/or 100% of the notional of local currency (BRL) debt;
- Any interest rate swap operation (fixed rates, CDI, IPCA, among others) whose market value simultaneously represents:(i) an immediate or potential loss greater than R$20 million, and
(ii) a loss greater than ten percent (10%) of the notional amount of the operation, must be submitted to the Risk Management Committee for evaluation of early liquidation (stop loss).
- Additionally, the Energisa Group may engage in transactions involving NDFs – Non-Deliverable Forwards – for additional balance sheet protection or even for arbitrage during periods of heightened volatility. In such cases, the total exposure from these arbitrated positions shall be limited to US$50 million.
- Exposure per financial institution for derivative operations must not simultaneously exceed the following limits:(i) The net Marked-to-Market (MtM) value (including both asset and liability positions) must not exceed 5% of the financial institution’s Net Equity;
(ii) The asset position must not exceed:- 10% of the financial institution’s Net Equity for institutions rated AAA;
- 7.5% of the Net Equity for institutions rated between AA+ and A+;
- 5% of the Net Equity for institutions rated from A down to the sovereign rating (Brazil National Scale).
- The exposure limit per financial institution must be observed for any derivative operation conducted by the Energisa Group, regardless of its structure. This limit should be based on the most recent published financial statements and must comply with the same rating requirements applicable to financial investments.
- Foreign exchange NDF operations whose market value represents a loss greater than 15% of their acquisition value must be liquidated early within five (5) business days, or submitted to the Risk Management Committee for reassessment, provided this timeframe is observed.
- Vanilla Swaps (Forex, Interest and Inflation);
- European Options (Exchange); e
- Non-Deliverable Forwards (NDFs) (Foreign Exchange).
NOTE: The issuance of convertible debentures or share warrants is not considered as a financial instrument for the purposes of limiting this policy.
5.4 Financial Guarantees for the Benefit of Energisa
Financial guarantees required by the Energisa Group aim to mitigate counterparty risk, that is, the risk associated with the possibility that an entity may fail to meet its payment obligations.
Eligible Guarantees
Three types of guarantees will be accepted, each requiring a coverage factor of at least 100% over the guaranteed asset/credit/contract, applying the same adjustment criteria used for the asset/credit/contract being guaranteed:
- Bank Guarantee: Must meet the minimum rating requirement for banks, with a classification equivalent to AA (Local) or equal to the local sovereign rating, whichever is lower, always considering the lowest available rating when more than one agency provides coverage (S&P, Fitch, and Moody’s).
- Security Deposit: CDBs from top-tier banks (as defined by the rating requirement for bank guarantees), Federal Government Bonds, or shares of Fixed Income or CDI Investment Funds managed by top-tier banks. Deposits must have daily liquidity to ensure they can be executed at any time.
- Surety Insurance: Insurance policies must be contracted with top-tier insurance companies ranked among the top 15 in the statistical report published by SUSEP (Superintendência Nacional de Seguros Privados), as per the procedure outlined below.
Step by step:
1.Enter the website ‘www.susep.gov.br’;
2. Select ‘Authorized Companies’;
3. In the ‘Market Statistics’ field, select ‘SES – SUSEP Statistics System’;
4. In the ‘Operations’ field, select ‘Insurance: Premiums and Claims’ and click on ‘Go to consultation’;
5. In the ‘Research Period’ field, enter the last 12 months available for consultation;
6. In the ‘Ramos’ field, select the type of insurance to be taken out;
7. In the ‘Data grouping’ field, select ‘Group by Company’.
8. After generating the report, export it to excel by selecting the ‘Export to Ms Excel’ button.
9. Sort the information in descending order by ‘Direct Award’;
10. The first 15 insurers on the list are those capable of contracting insurance.
Only surety insurance for signed and active contracts will be accepted, provided they were established in accordance with the Service Contracting Policy. For guarantee types not covered by said policy, formal approval must be obtained from both the requesting area’s Director and the Corporate Finance Director.
Guarantees should be prioritized in the following order:
(i) Bank guarantee;
(ii) Security deposit;
(iii) Surety insurance;
(iv) Corporate guarantee (subject to credit analysis);
(v) Other guarantees to be previously approved by the Corporate Finance Department.
5.5 Liquidity risk
In order to guarantee the liquidity of the Energisa Group’s commitments, the Office of the Financial Vice-President should maintain minimum resources in cash and cash equivalents, in order to guarantee short-term debt commitments, guarantee deposits, etc.
- (i) x% of gross revenue (average monthly forecast for the current year); or
(ii) y% of forecasted Adjusted EBITDA for the current year (Regulatory EBITDA for transmission concessionaires); or
(iii) Short-term debt forecasted for the next 12 months; or
(iv) Group Capex forecasted for the next 12 months.
The percentages “x” and “y”, short-term debt, and Capex are grouped in the table below, considering the specific characteristics of each business sector:
5.6 Revisions of the financial risk management policy
The Board of Directors must mandate a review of the Financial Market Risk Management Policy every two years, or on an extraordinary basis when necessary.
5.7 Dividend policy
The Energisa Group’s dividend policy shall be in effect in accordance with the Profit Allocation Policy approved by the Board of Directors of Energisa S.A. on October 25, 2023.
