21.

LOANS, FINANCINGS AND DEBENTURES


Financing source	Principal maturity		Annual financial cost %	Currency	2017									2016
					Current			Non-current			Total			Total
FOREIGN CURRENCY
KfW		2019	1,78%	Euros		4			—			4			7
Eurobonds		2024	9.25%	USD		25			3,308			3,333			—
Banco do Brasil: Various Bonds (1)		2024	Various	US$		2			22			24			23
(-) Transaction costs						—			(15	)		(15	)		—
(-) Interest paid in advance						—			(48	)		(48	)		—

Debt in foreign currency						31			3,267			3,298			30
BRAZILIAN CURRENCY
Banco do Brasil		2017	108.33% of the CDI Rate	R$		—			—			—			73
Banco do Brasil		2017	108.00% of CDI	R$		—			—			—			151
Banco do Brasil		2017	111.00% of CDI Rate	R$		—			—			—			51
Banco do Brasil		2021	140.00% of CDI Rate	R$		1			741			742			1,156
Banco do Brasil		2022	146.50% of CDI	R$		—			500			500			510
BNDES		2017	TJLP+2.34%	R$		—			—			—			74
Caixa Econômica Federal		2018	119.00% of CDI	R$		8			—			8			109
Caixa Econômica Federal		2022	146.50% of CDI	R$		1			626			627			698
Eletrobras		2023	UFIR; RGR + 6.00 to 8.00%	R$		17			33			50			68
Large customers		2024	Various	R$		2			2			4			6
Finep		2018	TJLP + 5% and TJLP + 8%	R$		2			—			2			6
Promissory Notes – 7th Issue		2017	128.00% of CDI	R$		—			—			—			674
Banco da Amazônia S.A.		2018	CDI + 1.90%	R$		122			—			122			123
Sonda (2)		2021	110.00% of CDI	R$		—			42			42			83
(-) Transaction costs						(2	)		(24	)		(26	)		(53	)
Debt in Brazilian currency						151			1,920			2,071			3,729

Total of loans and financings						182			5,187			5,369			3,759

Debentures – 3rd Issue, 1st series (3)		2017	CDI + 0.90%	R$		—			—			—			543
Debentures – 3rd Issue^, 2nd Series (3)		2019	IPCA + 6.00%	R$		158			143			301			293
Debentures – 3rd Issue^, 3rd Series (3)		2022	IPCA + 6.20%	R$		51			960			1,011			984
Debentures – 5th Issue^, 1st series (3)		2018	CDI + 1.70%	R$		703			—			703			1,411
Debentures – 6th Issue^, 1st series (3)		2018	CDI + 1.60%	R$		508			—			508			1,041
Debentures – 6th Issue^, 2nd series (3)		2020	IPCA +8.07%	R$		1			31			32			31
Debentures – 7th Issue^, 1st series (3)		2021	140.00% of CDI	R$		47			1,636			1,683			2,242
Debentures – 2nd Issue (4)		2017	IPCA + 7.96%	R$		—			—			—			235
Debentures ^– 3rd Issue^, 1st series (4)		2018	CDI + 0.69%	R$		447			—			447			464
Debentures ^– 3rd Issue^, 2nd series (4)		2021	IPCA + 4.70%	R$		59			1,478			1,537			1,496
Debentures – 3rd Issue^, 3rd series (4)		2025	IPCA + 5.10%	R$		39			882			921			896
Debentures – 4th Issue, single series (4)		2018	CDI + 4.05%	R$		20			—			20			1,627
Debentures – 5th Issue, single series (4)		2022	146.50% of CDI	R$		1			1,575			1,576			—
Debentures (5)		2018	CDI + 1.60%	R$		100			—			100			101
Debentures (5)		2018	CDI + 0.74%	R$		34			—			34			67
Debentures (5)		2022	TJLP+1.82% (75%); Selic+1.82% (25%)	R$		33			122			155			133
Debentures (5)		2019	116.50% of CDI	R$		—			50			50			—
Debentures (2)		2019	128.50% of CDI	R$		15			11			26			—
(-) FIC Pampulha: Securities of subsidiary companies (6)						(25	)		—			(25	)		(65	)
(-) Transaction costs						(2	)		(48	)		(50	)		(79	)

Total, debentures						2,189			6,840			9,029			11,420

Overall total						2,371			12,027			14,398			15,179

(1)	Net balance of the Restructured Debt comprising bonds at par and discounted, with balance of R$ 149, less the amounts given as Deposits in guarantee, with balance of R$ 126. Interest rates vary – from 2 to 8% p.a.; six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)	CemigTelecom.

(3)	Cemig Geração e Transmissão.

(4)	Cemig Distribuição.

(5)

Gasmig.

(6)	FIC Pampulha has financial investments in securities issued by subsidiaries of the Company. For more information on this fund, see Note 30.

Guarantees

The guarantees of the debtor balance on loans and financings, on December 31, 2017, were as follows:


	2017
Promissory Notes and Sureties		8,850
Receivables		3,963
Shares		1,390
Without guarantee		195

TOTAL		14,398

The composition of loans, financings and debentures, by currency and indexor, with the respective amortization, is as follows:


	2018			2019			2020			2021			2022			2023		2024			After 2024		Total
Currency
Euros		4			—			—			—			—			—		—			—		4
US dollar		27			—			—			—			—			—		3,330			—		3,357

Total, currency denominated		31			—			—			—			—			—		3,330			—		3,361
Indexors
IPCA (1)		308			647			820			819			547			220		220			220		3,801
Ufir / RGR (2)		17			13			11			3			3			2		—			—		49
CDI (3)		1,990			1,044			1,165			1,571			1,432			—		—			—		7,202
URTJ / TJLP (4)		27			23			23			23			23			—		—			—		119
IGP–DI (5)		2			—			1			—			—			1					—		4

Total governed by indexors		2,344			1,727			2,020			2,416			2,005			223		220			220		11,175

(-) Transaction costs		(4	)		(15	)		(19	)		(22	)		(15	)		—		(16	)		—		(91	)
(-) Interest paid in advance		—			—			—			—			—			—		(47	)		—		(47	)

Overall total		2,371			1,712			2,001			2,394			1,990			223		3,487			220		14,398

(1)	Expanded National Customer Price (IPCA) Index.

(2)	Fiscal Reference Unit (Ufir / RGR).

(3)	CDI: Interbank Rate for Certificates of Deposit.

(4)	URTJ: Interest rate reference unit.

(5)	IGP-DI (‘General – Domestic Availability’) Price Index.

The principal currencies and indexors used for monetary updating of loans and financings had the following variations:


Currency	Accumulated change in 2017, %		Accumulated change in 2016, %			Indexor		Accumulated change in 2017, %		Accumulated change in 2016, %
US dollar		1.50		(16.54	)		IPCA		2.95		6.29
Euros		15.41		(19.10	)		CDI		9.93		14.06

The changes in loans, financings and debentures were as follows:


Balance on December 31, 2014	13,509
Loans and financings obtained	5,817
Funding costs	(78	)
Financings obtained net of funding costs	5,739
Monetary and exchange rate variation	400
Financial charges provisioned	1,529
Amortization of transaction cost	16
Financial charges paid	(1,331	)
Amortization of financings	(4,695	)

Balance on December 31, 2015	15,167
Loans and financings obtained	5,878
(-) Transaction costs	(141	)

Financings obtained, net	5,737
Monetary and exchange rate variation	231
Financial charges provisioned	2,002
Amortization of transaction cost	68
Financial charges paid	(2,369	)
Amortization of financings	(5,592	)

Subtotal	15,244
(–) FIC Pampulha: Securities of subsidiary companies	(65	)

Balance at December 31, 2016	15,179
Loans and financings obtained	3,363
(–) Transaction costs (1)	(16	)
(–) Interest paid in advance (1)	(48	)

Financings obtained, net	3,299
Transaction costs (2)	(11	)
Monetary and exchange rate variation	168
Financial charges provisioned	1,537
Amortization of transaction cost	67
Financial charges paid	(1,749	)
Amortization of financings	(4,131	)

Subtotal	14,359
FIC Pampulha: Securities of subsidiary companies	39

Balance on December 31, 2017	14,398

(1)	Includes taxes with no cash effect, of R$ 10.

(2)	Transaction costs arising from the 5th issue of debentures by Cemig D, as per table of funds raised below.

Borrowing costs, capitalized

Costs of loans directly related to acquisition, construction or production of an asset which necessarily requires a significant time to be concluded for the purpose of use or sale are capitalized as part of the cost of the corresponding asset. For borrowings raised for the construction of a specific PP&E asset, the Company capitalizes all of the financial costs related to the borrowings directly to the respective assets being financed. For other borrowings raised that are not linked directly to a specific PP&E asset, a weighted average rate is established for the capitalization of the costs of those loans. All other costs of loans are recorded as finance costs in the period in which they are incurred. Costs of loans include interest and other costs incurred by the Company in relation to the loan.

The subsidiaries Cemig D and Gasmig transferred to Intangible assets the costs of loans and financings linked to working in progress, as follows:


	2017			2016			2015
Costs of loans and financings		1,604			2,070			1,545
Financing costs on Intangible assets		(71	)		(142	)		(159	)

Net effect in Profit or loss		1,533			1,928			1,386

The amounts of the capitalized borrowing costs have been excluded from the statement of cash flows, in the additions to cash flow of investment activities, because they do not represent an outflow of cash for acquisition of the related asset.

The average rate of capitalization of the loans and financings whose costs were transferred to work in progress was 14.28% (18.02% in 2016 and 15.25% in 2015).

Funding raised

This table gives the totals of funds raised in 2017, 2016 and 2015:


Financing source 2017	Signature date		Principal maturity		Annual financing cost – %	Amount (*)
Foreign currency
Eurobonds		12/05/2017		2024	9.25%		3,252
(–) Transaction costs (*)							(16	)
Interest paid in advance (*)							(48	)
Brazilian currency
Debentures (1)		11/04/2013		2022	CDI + 0.74%		34
Debentures (2)		04/22/2017		2019	128.50% of CDI		26
Debentures – 5th Issue, single series (3)		12/14/2017		2022	146.50% of CDI		1,575
(–) Transaction costs (3)							(11	)

Total raised							4,812

(*)	Includes taxes without cash effect, of R$ 10.

(1)	Subscription by BNDESPar of Gasmig’s fourth debentures Issue, in June 2017, to support the plan for investment in expansion of the gas distribution network.

(2)	CemigTelecom completed its second issue of non-convertible debentures in May 2017 with real guarantees and additional surety, in a single series, to roll over debt and strengthen cash position.

(3)

On December 14, 2017 Cemig Telecom made its 5^th issue of non-convertible debentures, with maturity 4.5 years, annual remuneration of 146.50% of the CDI, to be amortized in 36 monthly installments becoming due as from July 2019. Payment for subscription of the Debentures of th^e 5th issue was made with the debentures of the 4th issue – thus there was no cash effect in the Company.


Funding raised 2016	Principal maturity		Annual financial cost, %	Amount raised
Brazilian currency
Caixa Econômica Federal – Cemig D		2020	132.14% of CDI		674
Debentures (Cemig D)		2018	CDI + 4.05%		1,575
KfW (Cemig GT)		2018	1.78%		2
Promissory Notes – Cemig GT – 7th Issue		2017	128% of CDI		606
Debentures – 4th Issue – 7th Series (Gasmig)		2020	TJLP		24
Debentures – 7th Issue (CEMIG GT)		2021	140% of CDI		2,195
Banco do Brasil		2018	132.90% of CDI		580
Sonda (Cemig Telecom)		2021	110% of CDI		81

Financings obtained net of funding costs					5,737


Funding raised 2015	Principal maturity		Annual financial cost, %	Amount raised
Brazilian currency
Banco do Brasil (Cemig GT)		2015	106.90% of CDI		593
Debentures 6th Issue – 1st Series (Cemig GT)		2018	CDI + 1.60%		967
Debentures 6th Issue – 2nd Series (Cemig GT)		2020	IPCA + 8.07%		27
Promissory Notes – 6th Issue (Cemig GT)		2016	120% of CDI		1,407
Banco da Amazônia (Cemig GT)		2018	CDI + 1.90%		118
Caixa Econômica Federal (Cemig D)		2018	119% of CDI		200
Promissory Notes – 8th Issue (Cemig D)		2016	111.70% of CDI		1,685
Banco do Brasil (Cemig D)		2020	114% of CDI		487
Banco do Brasil (Cemig D)		2017	111% of CDI		98
Debentures – 4th Issue (Gasmig)		2022	TJLP + 7.82 (75%) and Selic + 1.82 (25%)		34
Debentures – 5th Issue (Gasmig)		2018	CDI + 1.60%		100
Itaú Unibanco/Banco BBM (Cemig Telecom)		2016	120% of CDI		23

Total funding					5,739

Eurobonds

In December 2017 Cemig GT issued Eurobonds in the international market for a total of US$ 1,000, with six-monthly coupon, at 9.25% p.a. The 7-year issue has maturity in December 2024, with an option for prepayment, without premium after six years from issue.

The issuance had a surety guarantee from the Company, and proceeds were used to amortize short-term debt. Fitch and Standard&Poors gave the issue the rating ‘B’.

To protect against foreign exchange variation, concomitantly with the receipt of proceeds on December 5, 2017, Cemig GT contracted a hedge transaction, at the cost of 150.5% of the variation arising from the CDI, for the total amount including the interest, through a combination of interest rate swap and call spread on the principal (i.e. in which Cemig GT accepts that the protection is up to an agreed price level). The issuance deed had restrictive covenants and specified default events, which could generate early maturity of the debt. The package of covenants contains restrictions on investment, on indebtedness, on payment of dividends, and real guarantees, among other items, thus providing a combination of operational and financial flexibility for the issue and protection for investors. The covenants were defined according to the commonly accepted covenants for High Yield issues, and will cease to apply if and when Cemig GT is rated ‘investment grade’ by two rating agencies.

Debentures

The debentures issued by the Company’s subsidiaries are not convertible into shares, and have the following characteristics:


Issuer	Type of guarantee	Annual cost, %	Maturity		2017			2016
Cemig GT – 3rd Issue – 1st Series	Unsecured	CDI Rate + 0.90%		2017		—			543
Cemig GT – 3rd Issue – 2nd Series	Unsecured	IPCA + 6.00%		2019		301			293
Cemig GT – 3rd Issue – 3rd Series	Unsecured	IPCA + 6.20%		2022		1,011			984
Cemig GT – 5th Issue, 1st Series	Unsecured	CDI + 1.70%		2018		703			1,411
Cemig GT – 6th Issue – 1st Series	Surety	CDI + 1.60%		2018		508			1,041
Cemig GT – 6th Issue – 2nd Series	Surety	IPCA +8.07%		2020		32			31
Cemig GT – 7th Issue – 1st Series	Receivables (Revenue)	140.00% of CDI		2021		1,683			2,242
Cemig D – 2nd Issue	None	IPCA + 7.96%		2017		—			235
Cemig D – 3rd Issue – 1st Series	Surety	CDI + 0.69%		2018		447			464
Cemig D – 3rd Issue – 2nd Series	Surety	IPCA + 4.70%		2021		1,537			1,496
Cemig D – 3rd Issue – 3rd Series	Surety	IPCA + 5.10%		2025		921			896
Cemig D – 4th Issue – single Series	Surety	CDI + 4.05%		2018		20			1,627
Cemig D – 5th Issue – single Series	Surety /Receivables	146.50% of CDI		2022		1,576			—
Gasmig	Unsecured	CDI + 1.60%		2018		100			101
Gasmig	Unsecured	CDI + 0.74%		2018		34			67
Gasmig	Unsecured	TJLP+1.82% (75%); Selic+1.82% (25%)		2022		155			133
Gasmig	Unsecured	116.50% of CDI		2019		50			—
CemigTelecom	Receivables	128.50% of CDI		2019		26			—
(–) FIC Pampulha: Securities of subsidiary companies						(25	)		(65	)
(–) Transaction costs						(50	)		(79	)

TOTAL						9,029			11,420

For the debentures issued by the subsidiaries, there are no agreements for renegotiation, nor debentures held in treasury. There is an early maturity clause for cross-default in the event of non-payment, by Cemig GT or by the Company, of any pecuniary obligation with individual or aggregate value greater than R$ 50 million (“cross default”).

Restrictive covenants

The Company has contracts with covenants linked to financial index, as follows:


Title	Parameter	Ratio required – Issuer	Ratio required – Cemig (Guarantor)	Compliance required
Banco do Brasil: Bank Credit Notes, and Fixed Credit Cemig GT (1)	Net debt / (Ebitda + Dividends received)	The following, or less: 5.5 on June 30, 2018 5.0 on December 31, 2018 5.0 on June 30, 2019 4.5 on December 31, 2019 4.5 on June 30, 2020 3.0 on December 31, 2020 3.0 on June 30, 2021 2.5 on / after Dec. 31, 2021	The following, or less: 4.5 on June 30, 2018 4.25 on December 31, 2018 4.25 on June 30, 2019 3.5 on December 31, 2019 3.5 on June 30, 2020 3.0 on December 31, 2020 3.0 on June 30, 2021 2.5 on / after Dec. 31, 2021	Half-yearly

7th Debenture Issue Cemig GT (2)	Net debt / (Ebitda + Dividends received)	The following, or less: 5.5 in 2017 5.0 in 2018 4.5 in 2019 3.0 in 2020 2.5 in 2021	The following, or less: 4.5 in 2017 4.25 in 2018 3.5 in 2019 3.0 in 2020 2.5 in 2021	Half-yearly

Eurobonds Cemig GT (3)	Net debt / Ebitda adjusted for the Covenant	The following, or less: 5.5 on December 31, 2017 5.5 on June 30, 2018 5.0 on December 31, 2018 5.0 on June 30, 2019 4.5 on December 31, 2019 4.5 on June 30, 2020 3.0 on December 31, 2020 3.0 on June 30, 2021 2.5 on /after Dec. 31, 2021	The following, or less: 5.0 on December 31, 2017 5.0 on June 30, 2018 4.25 on December 31, 2018 4.25 on June 30, 2019 3.5 on December 31, 2019 3.5 on June 30, 2020 3.0 on December 31, 2020 3.0 on June 30, 2021 3.0 on and after Dec. 31, 2021	Half-yearly

Bank Credit Notes of Banco do Brasil and Caixa Econômica Federal; and 5th Debenture Issue CEMIG D (4)	Net debt / (Ebitda + Dividends received)	The following, or less: 7.5 on December 31, 2017 7.5 on June 30, 2018 4.5 on December 31, 2018 3.8 on June 30, 2019 3.8 on December 31, 2019 3.3 on June 30, 2020 3.3 on December 31, 2020 3.3 on June 30, 2021 3.3 on /after Dec. 31, 2021	The following, or less: 4.5 on December 31, 2017 4.5 on June 30, 2018 4.25 on December 31, 2018 4.25 on June 30, 2019 3.5 on December 31, 2019 3.5 on June 30, 2020 3.0 on December 31, 2020 3.0 on June 30, 2021 2.5 on / after Dec. 31, 2021	Half-yearly
	Current liquidity	0.6x on/after Dec. 31, 2017	0.6x on/ after Dec. 31, 2027	Half-yearly

	Overall indebtedness (Total liabilities/Total assets)	Less than 0.6	—	Annual
Gasmig – Debentures (5)	Ebitda / Debt servicing	1.3 or more	—	Annual
	Ebitda / Net finance income (expenses)	2.5 or more	—	Annual
	Net debt / Ebitda	2.5 or less	—	Annual

(1)	Through contractual amendments, a further early maturity clause was added to Cemig GT’s Bank Credit Notes and Fixed Credit Line with Banco do Brasil, requiring compliance with a financial ratio similar to that required by the 7^th Debenture Issue.

(2)	7th Issue of Debentures by Cemig GT, in December 2016, of R$ 2,240.

(3)

There is also an obligation to comply with a ‘maintenance’ covenant – which requires that the debt in Cemig Consolidated (as per financial statements), shall have asset guarantee for debt of 1.75x Ebitda (2.0 in December 2017); and a ‘damage’ covenant, requiring real guarantee for debt in Cemig GT of 1.5x Ebitda. In the event that ‘maintenance financial covenants’ are exceeded at any time, the interest rate will automatically be increased by 2% p.a. as long as the excess continues.

(4)	The Bank Credit Notes of Banco do Brasil and Caixa Econômica Federal were amended in December 2017, to include requirement for 6-monthly compliance with covenants as described above. The 5th Debenture Issue included demand ability of compliance with the Covenants.

(5)

If Gasmig does not achieve the required covenants, Gasmig must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable to the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Cross-default: Certain contractually specified situations can cause early maturity of other debts.

As of December 31, 2017, the Company was in compliance with the covenants requiring annual and semi-annual compliance.