Enel kicks off green power IPO

By Steven Jewkes and Svetlana Kovalyova

MILAN (BestGrowthStock) – Investors said the listing of a third of Italian utility Enel’s green power business would be attractive as a long term investment only if priced at the lower end of the range.

Enel is targeting up to 3.4 billion euros ($4.8 billion) with the partial sale of Enel Green Power, Europe’s biggest initial public offering in three years, and wants to use the proceeds to cut its mammoth debt.

Enel, which has more debt than peers, decided to push ahead with its unit’s IPO despite diminished appetite for renewable energy. Chief Executive Officer Fulvio Conti said institutional and retail investors had given “very promising” feedback on EGP.

“EGP is better than its peers but this is not enough to justify a big premium,” said an Italian analyst who attended EGP’s roadshow in Milan on Monday. “There are a lot of risks. Now the market is not ready to pay a lot in terms of multiples.”

Enel, Europe’s No.2 by installed capacity, has valued the whole of EGP at between 9 billion euros and 10.5 billion.

The flotation could signal confidence in demand for IPOs but Enel has been forced to cut the price target for EGP to between 1.8 and 2.1 euros a share from a preliminary range of 1.9 to 2.4 euros after some investors clamored for a price reduction.

“(EGP) could be interesting in the lower part of the price range,” said Marco Vailati, director of investment at Milan private bank Cassa Lombarda, who expects interest from Italian investors and sovereign wealth funds to offset the impact of hedge funds pushing for a lower price.

EGP will debut on the Milan and Madrid bourses on November 4.

The IPO market has picked up in the recent months from a limited number of listings in the first half of the year.

American International Group Inc was set to close institutional bookings for its $15 billion AIA Group IPO two days ahead of plan while Coal India’s up to $3.5 billion IPO was 32.5 percent covered by early afternoon on Monday [nSGE69H02W]

CUTTING DEBT

Conti, the man behind the internationalization of Enel, which controls 92 percent of Spanish utility Endesa, is seeking to reap at least 3 billion euros from EGP’s listing.

Enel, which has total debt of 53.9 billion, plans to reduce its debt to 39 billion euros by 2014.

“There is no fear of markets for a good company,” Conti told investors at the EGP presentation.

Senior Fitch analyst Francesca Fraulo told Reuters on the sidelines of the Milan roadshow that Enel was very likely to reach its debt target, adding she saw no big risk for a change in the power group’s credit rating.

Investors have welcomed EGP’s diversified energy mix, strong cash flow and broad geographic footprint, but have expressed concerns about slower growth versus peers and fragile markets.

“It is a good investment in the long-term,” said Guido Brignone, an independent financial analyst and former chairman of analysts association AIAF. “Short-term it depends on the price. The price will finish at 2 euros a share.”

Shares of EGP’s rivals, Spain’s Iberdrola Renovables SA, Portugal’s EDP Renewables and France’s EDF Energies Nouvelles, have underperformed this year, hit by cuts to green energy incentives by cash-strapped European governments and uncertainty over the U.S. climate change bill.

Selling EPG shares at the top of the range would give it an enterprise value — shares plus debt — of 10.3 times core earnings, just below peers, the prospectus said. At 1.8 euros a share, EGP’s enterprise value would drop to 9.2 times EBITDA.

Shares in Enel were up 0.19 percent at 0907 GMT, slightly outperforming a flat Stoxx 600 European utility index.

(Writing by Lisa Jucca; Additional reporting by Nigel Tutt and Giancarlo Navach in Milan; Editing by David Holmes and Louise Heavens)

($1 = 0.7095 euro)

Enel kicks off green power IPO