By Stephen Jewkes and Svetlana Kovalyova
MILAN, Sept 9 (Reuters) - Italy's Enel SpA is pressing on with plans to list its renewables unit to cut its debt pile, but risks having to sell what are prize assets at a discount to attract investors in an out-of-favour sector.
Enel, Italy's biggest but Europe's most indebted utility, aims to raise at least 3 billion euros ($3.8 billion) from the sale of a minority stake in Enel Green Power (EGP), making it potentially the biggest European share offering in 2010.
EGP generates electricity from sun, wind and other renewable sources at more than 600 plants in 16 countries.
Enel told Reuters it will launch the initial public offering (IPO) of shares in EGP, one of its fastest-growing units, in the last two weeks of October, but could still opt for a private sale if it offers a better deal.
'I personally would definitely see the rationale for pulling the IPO if the market doesn't come back. Clearly it's a very valuable asset and you don't want to give it away,' says Fitch's EMEA energy-utilities director Francesca Fraulo
European IPOs have yielded mixed results this year. Polish insurer PZU and Spain's Amadeus met strong demand, while others such as Britain's Ocado were forced to lower targets.
British oil and gas firm Fairfield Energy, airline ticketer Travelport and fashion chain New Look all failed to complete planned listings.
ENTERPRISE VALUE
Shares in EGP's main listed rivals -- Spain's Iberdrola Renovables SA (IBR), Portugal's EDP Renewables and France's EDF Energies Nouvelles -- have underperformed in the past 12 months, hit by cuts to green energy incentives in Europe and uncertainty over the U.S. climate change bill.
'The valuation of competing companies is very weak today, so why should anyone pay more for EGP than for EDPR or Iberdrola Renovables?' said Ben Guest, managing partner at Hazel Capital, a London-based cleantech investment boutique.
Enel has not said what size stake could be floated though management has indicated around 30 percent. Given debt of 3 billion euros that would give EGP an enterprise value at around 12 billion euros against a 2009 EBITDA of 1.2 billion.
According to Thomson Reuters data, IBR trades at a 2010 EV/EBITDA of 6.89 times and EDP Renewables at 9.54 times.
While the EGP sale is part of Enel's disposal plans to cut its debt to 45 billion euros by year end from 53.9 billion end June, some feel it should be delayed and other debt reduction options considered if a large discount is required.
'IPOing in the current market would probably not be ideal timing ... it would have to be very deeply discounted,' Impax Asset Management portfolio manager Simon Gottelier said, adding a 30 to 50 percent discount would be needed to fuel appetite.
Enel CEO Fulvio Conti, the man who internationalised Enel through the 40 billion euro acquisition of Endesa, is committed to the sale to cut group debt to hold on to its credit rating.
In an interview with Reuters this month Conti said he saw no reason to delay the offer but added if the price was not right, the sale could be postponed.
Enel, which was once eyeing proceeds of around 4 billion euros, has put back the IPO from an earlier deadline of June. It has appointed banks to lead the operation.
NO STRESS
After bond refinancing operations and agreeing a 10 billion euro credit facility, Enel's debt maturity profile has improved significantly, boosting its rating credentials.
Debt expiries in the next two years are limited, indicating Enel could be less desperate to do a deal.
'I think the market would understand a postponement (of the IPO) and that Enel shareholders would be more concerned at selling off top assets,' a London broker said on condition of anonymity, adding a trade sale might reduce IPO risk but would mean offering preferred rights to any eventual investor.
The broker added a lot depended on how Enel will position its renewables unit for investors. 'It may be the fastest growing business in Enel but it's a lower growth proposition than IBR and EDPR. There could well be a trade off: less growth but more dividend.'
Sources said Enel is targeting a dividend at the top end of the range of payouts by peers, which is between 20 and 30 percent of net profit.
Yet EGP's steady cash generation and EBITDA growth could make the company a good pick for long-term investors such as pension funds or green energy purists.
The EU's 2020 climate change targets should ensure steady growth for green energy players like EGP. The company can count on geographic diversity to help spread regulatory risk and an IPO could boost the size of the market and attract new investors.
'It would give a positive signal,' said Matthias Fawer, vice president of Sarasin Sustainable Investment at Swiss Sarasin Bank. 'Yes, we want to go for it, we believe in the renewable energy sector.'
(Additional reporting by Christopher Vellacott in London; Editing by David Holmes)
($1=.7871 Euro) Keywords: ENEL/IPO (stephen.jewkes.thomsonreuters.com; +39 02 6612 9695; RM: stephen.jewkes.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MILAN, Sept 9 (Reuters) - Italy's Enel SpA is pressing on with plans to list its renewables unit to cut its debt pile, but risks having to sell what are prize assets at a discount to attract investors in an out-of-favour sector.
Enel, Italy's biggest but Europe's most indebted utility, aims to raise at least 3 billion euros ($3.8 billion) from the sale of a minority stake in Enel Green Power (EGP), making it potentially the biggest European share offering in 2010.
EGP generates electricity from sun, wind and other renewable sources at more than 600 plants in 16 countries.
Enel told Reuters it will launch the initial public offering (IPO) of shares in EGP, one of its fastest-growing units, in the last two weeks of October, but could still opt for a private sale if it offers a better deal.
'I personally would definitely see the rationale for pulling the IPO if the market doesn't come back. Clearly it's a very valuable asset and you don't want to give it away,' says Fitch's EMEA energy-utilities director Francesca Fraulo
European IPOs have yielded mixed results this year. Polish insurer PZU and Spain's Amadeus met strong demand, while others such as Britain's Ocado were forced to lower targets.
British oil and gas firm Fairfield Energy, airline ticketer Travelport and fashion chain New Look all failed to complete planned listings.
ENTERPRISE VALUE
Shares in EGP's main listed rivals -- Spain's Iberdrola Renovables SA (IBR), Portugal's EDP Renewables and France's EDF Energies Nouvelles -- have underperformed in the past 12 months, hit by cuts to green energy incentives in Europe and uncertainty over the U.S. climate change bill.
'The valuation of competing companies is very weak today, so why should anyone pay more for EGP than for EDPR or Iberdrola Renovables?' said Ben Guest, managing partner at Hazel Capital, a London-based cleantech investment boutique.
Enel has not said what size stake could be floated though management has indicated around 30 percent. Given debt of 3 billion euros that would give EGP an enterprise value at around 12 billion euros against a 2009 EBITDA of 1.2 billion.
According to Thomson Reuters data, IBR trades at a 2010 EV/EBITDA of 6.89 times and EDP Renewables at 9.54 times.
While the EGP sale is part of Enel's disposal plans to cut its debt to 45 billion euros by year end from 53.9 billion end June, some feel it should be delayed and other debt reduction options considered if a large discount is required.
'IPOing in the current market would probably not be ideal timing ... it would have to be very deeply discounted,' Impax Asset Management portfolio manager Simon Gottelier said, adding a 30 to 50 percent discount would be needed to fuel appetite.
Enel CEO Fulvio Conti, the man who internationalised Enel through the 40 billion euro acquisition of Endesa, is committed to the sale to cut group debt to hold on to its credit rating.
In an interview with Reuters this month Conti said he saw no reason to delay the offer but added if the price was not right, the sale could be postponed.
Enel, which was once eyeing proceeds of around 4 billion euros, has put back the IPO from an earlier deadline of June. It has appointed banks to lead the operation.
NO STRESS
After bond refinancing operations and agreeing a 10 billion euro credit facility, Enel's debt maturity profile has improved significantly, boosting its rating credentials.
Debt expiries in the next two years are limited, indicating Enel could be less desperate to do a deal.
'I think the market would understand a postponement (of the IPO) and that Enel shareholders would be more concerned at selling off top assets,' a London broker said on condition of anonymity, adding a trade sale might reduce IPO risk but would mean offering preferred rights to any eventual investor.
The broker added a lot depended on how Enel will position its renewables unit for investors. 'It may be the fastest growing business in Enel but it's a lower growth proposition than IBR and EDPR. There could well be a trade off: less growth but more dividend.'
Sources said Enel is targeting a dividend at the top end of the range of payouts by peers, which is between 20 and 30 percent of net profit.
Yet EGP's steady cash generation and EBITDA growth could make the company a good pick for long-term investors such as pension funds or green energy purists.
The EU's 2020 climate change targets should ensure steady growth for green energy players like EGP. The company can count on geographic diversity to help spread regulatory risk and an IPO could boost the size of the market and attract new investors.
'It would give a positive signal,' said Matthias Fawer, vice president of Sarasin Sustainable Investment at Swiss Sarasin Bank. 'Yes, we want to go for it, we believe in the renewable energy sector.'
(Additional reporting by Christopher Vellacott in London; Editing by David Holmes)
($1=.7871 Euro) Keywords: ENEL/IPO (stephen.jewkes.thomsonreuters.com; +39 02 6612 9695; RM: stephen.jewkes.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.