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CMS Selling Nonutility Michigan Assets, Argentine Plants for $180M

CMS Energy said Thursday that it signed a binding letter of intent to sell a portfolio of its businesses in Argentina and its northern Michigan nonutility natural gas assets for $180 million to Michigan-based Lucid Energy, whose financial partners include Sociedad Argentina de Energia. The sale, which is subject to execution of a final agreement, is expected to close in the first half of 2007. Proceeds will be used to reduce debt and invest in CMS utility Consumers Energy.

The Michigan assets being sold include CMS Enterprises' Antrim natural gas processing plant, 155 miles of associated gathering lines and interests in three special purpose gas transmission pipelines that total 110 miles. The Argentine assets include all of CMS Enterprises' electric generating plant interests (the 540 MW gas-fired CT Mendoza plant, 128 MW gas-fired Ensenada plant and the 1,320 MW El Chocon hydropower plant), and a stake in the 272-mile TGM natural gas pipeline business in Argentina. CMS said it will maintain a stake in the TGN gas business, which remains subject to a potential sale to the government of Argentina.

The company also announced plans to conduct an auction to sell a second portfolio of assets: its Atacama combined gas pipeline and power generation businesses in Argentina and Chile, its electric generating plant in Jamaica and its CPEE electric distribution business in Brazil. The sale of those businesses is expected to be completed by the end of 2007. The company had announced its plan last year to sell a majority of its interest in CPEE through a planned initial public offering in Brazil, and will retain that as an option, pending the indications from the auction.

The asset sales are part of CMS' plan to reduce debt and strengthen its balance sheet. The company plans to reduce debt by $1.5 billion by the end of 2008. It recently completed the sale of its interests in the 1,500 MW Midland Cogeneration Venture for $60.5 million and is in the process of completing the sale of the 798 MW Palisades nuclear plant near South Haven, MI, to Entergy Corp. for $380 million.

CMS' board announced late last month that it was reinstating its common dividend at 5 cents per quarter. Merrill Lynch analyst Jonathan Arnold called it a "positive signal that the company is continuing" to make progress. Arnold said the dividend equates to a 69.5% payout of estimated 2007 earnings of $1.15/share and a dividend yield of 1.2%. "While the yield is well below the 3.5% average for regulated utilities, we believe the signal sent by reinstating a dividend at this point is more relevant than the current size. Management also indicated its intention to move the yield closer to the sector average over time." Arnold raised his stock price forecast on the company as a result of the changes.

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