By Luciano Costa
SAO PAULO, June 7 (Reuters) - Chinese power utilities and foreign investment funds are seen as the likely bidders in upcoming asset sales in Brazil's electricity industry, as debt-laden state utilities seek to root out years of political mismanagement and balance sheet overstretching, according to lawyers familiar with the market.
Centrais Elétricas Brasileiras SA, known as Eletrobras, and Cia Energética de Minas Gerais SA, known as Cemig, plan to divest generation and transmission assets, including their stakes in some of Brazil's largest hydroelectric dams - Santo Antônio and Belo Monte.
Large Chinese strategic investors will probably be the winning bidders for the dams, because the size of the projects fit their strategies better and they would be willing to pay more, said Tiago Figueiró, who is part of the team involved in electricity industry issues at São Paulo-based law firm Veirano Advogados.
"It would be pretty hard to attract an American or European investor for a project of that size," he said.
Chinese power conglomerates have gradually become the dominant force in Brazil's electricity industry, where high debt, a harsh recession and less stringent takeover barriers than in other major markets have stoked a wave of acquisitions.
Eletrobras and Cemig are planning the divestitures in order to cut debt and cushion themselves from the impact of the harshest recession on record in Brazil, Latin America's largest economy.
Since the start of 2015, Chinese companies have been the buyers in most announced electricity mergers in Brazil, according to Thomson Reuters deals intelligence data.
Brazil has been the No. 1 M&A global destination for China's State Grid Corp, the world's largest utility, since 2010, accounting for 43 percent of the $37 billion it spent on acquisitions during that period, Thomson Reuters data showed.
For China Three Gorges Corp, a power generator which owns the Three Gorges dam, the world's second largest, Brazil acquisitions represented 19 percent of its $30.6 billion worth of M&A deals in the same period.
José Oliva, a lawyer at São Paulo-based Pinheiro Neto Advogados, said the Eletrobras and Cemig asset sale plans are unlikely to be much affected by ongoing political turmoil in Brazil, as power sector acquisitions are perceived as a long-term investment.
Cemig, which is controlled by the Brazilian state of Minas Gerais, has included wind farms and small power dams in a divestiture plan worth 6.5 billion reais ($1.83 billion).
Eletrobras - Brazil's largest power holding company - is selling stakes in more than 100 projects, from which it could fetch around 5 billion reais.
Bankers, lawyers and industry executives expect that European and North American investment and pension funds may bid for the minority stakes that Eletrobras and Cemig have in smaller projects such as power transmission lines and renewable energy firms.
Paulo Dalla Nora, an asset manager at FIR Capital, says he has already seen interest from foreign investors, particularly in renewable energy assets.
($1 = 3.2812 reais)
(Writing by Marcelo Teixeira; Editing by Guillermo Parra-Bernal and Leslie Adler)