MILAN, Sept 18 (Reuters) - Italy’s biggest utility Enel faces a busy few months as it reshapes itself to focus on Latin America, with its stake in Spain’s Endesa under the spotlight and more than 4 billion euros ($5 billion) of assets in Eastern Europe to sell.
Enel, Europe’s most indebted utility, is looking to cut net debt to about 37 billion euros by the end of this year from 41.5 billion euros at the end of March to keep its investment-grade rating. To do that it has committed to sell around 4 billion euros of assets this year.
Under new boss Francesco Starace, state-controlled Enel put assets in Slovakia and Romania on the block earlier this year and said it might also sell a chunk of its 92 percent stake in Spanish utility Endesa.
On Wednesday Endesa approved the sale of its Latin American assets to Enel for 8.25 billion euros.
The move will give the Italian group greater leverage to develop its businesses in the lucrative South American market while leaving Endesa to focus on mainly regulated domestic assets with guaranteed cash flows.
“This is the first step towards a new Enel,” said UBS’s Alberto Gandolfi in a research note. “Next we continue to believe Enel will up the free float in Endesa... (while) divestments in Eastern Europe should (also) continue.”
Enel’s multi-billion euro acquisition of Spain’s Endesa in 2008 was a transformational deal that turned Enel into a major European player overnight with 61 million clients worldwide.
But with low power prices, weak demand and a boom in renewable energy, Enel switched its focus to emerging markets and green technologies to fuel growth.
Earlier this month Starace, former head of the group’s renewables unit Enel Green Power, told Reuters the company could sell up to 22 percent in Endesa to help cut debt and fund investments but added that other options included delisting or doing nothing.
A banking source familiar with the matter said on Thursday no decision had yet been taken but added the option of leaving things as they were was the least likely.
“There’s a lot of liquidity out there and there’s a lot of interest in buying Endesa stock since it’s practically a regulated business with returns that could be attractive,” the source said.
Selling 22 percent of Endesa could raise 6.8 billion euros at current market prices.
That’s cash that could be used to fund fast-growing businesses in South America and offset the ongoing slowdown in Spain and Italy which currently account for around 65 percent of core earnings.
With its growing population, Enel estimates power demand in the countries it serves in central and south America will grow 5 percent a year to 2018.
“I reckon Enel will eventually exit Endesa completely since it makes no industrial sense. The growth is in areas like Latin America where I‘m sure they’ll employ greater capital,” a banker with knowledge of the matter said, asking not to be named.
According to UBS, Enel trades at a 25 percent dicount to its peers on 2017 earnings, a gap that could narrow as it delivers superior growth, focuses increasingly on regulated business and cuts its debt.
Enel said in July it would identify a pool of assets worth around 8-9 billion euros that could be sold to reach the 4-billion target for the year end, flagging a series of assets in Eastern Europe including its 66 percent stake in Slovakia’s nuclear power plant Slovenske Elektrarne.
Czech utilities CEZ and EPH have already expressed interest in the Slovakian plant which analysts at Santander have valued at 3.6 billion euros including debt. The Slovakian state, which owns 34 percent of the plant, has also said it is interested.
A lawyer with knowledge of the matter said Russian state nuclear company Rosatom had shown interest but had cooled on the idea due to the political dispute between the European Union and Russia over Ukraine.
Starace told Reuters earlier this month he did not rule out selling the group’s Russian power plant, previously named OGK-5 , but added conditions were currently not favourable for a sale.
Enel’s power distribution assets in Romania, estimated to be worth 1.8 billion euros, are also up for sale and the Romanian government, which considers energy distribution a strategic sector, has said it is interested.
According to an industry source, State Grid of China has also expressed interest.
Enel declined to provide the names of potential candidates for the Slovakian and Romanian assets.
1 US dollar = 0.7757 euro Additional reporting by Pamela Barbaglia; Editing by Elaine Hardcastle