Enel cuts unit’s IPO range: sources

By Stephen Jewkes and Alberto Sisto

MILAN/ROME (BestGrowthStock) – Italian utility Enel SpA(ENEI.MI: ) has set the price range for the initial public offering of its unit, Enel Green Power (EGP) at 1.8-2.1 euros per share, below a premarketing range, sources close to the deal said on Thursday.

The range values Enel’s renewable energy arm at up to 10.5 billion euros ($14.78 billion) and the planned market sale of up to a third of EGP will make it Europe’s biggest IPO this year.

Enel, Europe’s No.2 utility by installed capacity, had set a premarketing price range of 1.9-2.4 euros per share for EGP, sources familiar with the deal told Reuters, adding the unit has 5 billion shares.

“The range is 1.8 to 2.1 euros per share,” a source familiar with the deal said after a meeting between the company and bankers to set the final IPO range, confirming what two banking sources also said.

One of the banking sources added the range could still theoretically be reviewed. Earlier on Thursday, Enel Chief Executive Fulvio Conti said the final price range will be announced on Friday.

Enel, Europe’s most indebted utility, hopes to raise at least 3 billion euros by selling shares in its EGP unit to help cut debt and protect credit ratings, even as the appetite for green energy dims in the face of falling governments subsidies.

In a newspaper interview on Thursday, Conti said EGP will be valued in line with peers at around 10 to 12 times core earnings. This would imply a valuation of up to 12.6 billion euros, taking out debt of 3 billion euros and based on 2009 pro forma core earnings of 1.3 billion euros.

“It could be attractive, but only at the right price. Peers are trading on an average EV/EBITDA of 9.8 times 2011 core earnings. I come out at 20 percent below that. Unless it’s cheap, I think it will meet with a reasonably lukewarm response,” Impax investment manager Simon Gottelier said.

Conti, the man behind the internationalization of Enel, which controls 92 percent of Spanish utility Endesa SA (ELE.MC: ), once said he expected to raise 4 billion euros from the sale, but has since said he wants at least 3 billion euros.


The shares of EGP’s main rivals — Spain’s Iberdrola Renovables SA (IBR.MC: ), Portugal’s EDP Renewables (EDPR.LS: ) and France’s EDF Energies Nouvelles SA (EEN.PA: ) — 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.

While competitors focus on one or two main technologies, EGP has a more diversified mix, as well as a broader geographical footprint that could help reduce regulatory risk. The unit’s exposure to incentives and subsidies, which account for some 28 percent of revenues, is also less than its peers.

“What we like is it is very cash flow generative, can fund capex internally and has a low net debt-to-EBITDA ratio versus peers,” Gottelier said.

On Thursday, Conti confirmed the unit will offer a dividend payout of around 30 percent, in line with peers.

The trouble is hydro, which excludes more profitable big hydro projects, and geothermal are mature and relatively low growth businesses, and with most of its future growth based on wind development, regulatory uncertainty beyond 2011 is a worry.

“Regulatory changes are a big problem when countries are worried about their budgets and at this stage the sector can only grow through subsidies,” said Benita Barretto, an analyst at Berenberg, adding investors were unwilling to overpay.

The IPO’s global coordinators are Mediobanca (MDBI.MI: ), Goldman Sachs Group Inc (GS.N: ), Credit Suisse Group Inc (CSGN.VX: ) and Intesa Sanpaolo SpA (ISP.MI: ). Bookrunners are JP Morgan Chase and Co (JPM.N: ), Bank of America Corp (BAC.N: ), Morgan Stanley (MS.N: ) (Read more about the money market today. ), Barclays Plc (BARC.L: ), BBVA (BBVA.MC: ) and UniCredit SpA (CRDI.MI: ).

A source told Reuters on Thursday that banking commissions for the IPO would be around 1.85 percent of the final offer.

(Reporting by Stephen Jewkes and Alberto Sisto; additional reporting by Lisa Jucca, Ian Simpson in Milan and Christopher Vellacott in London; editing by Andre Grenon)

Enel cuts unit’s IPO range: sources