Enel SpA (ENEL.MI) said Friday it agreed to sell a majority stake in the Italian natural gas distribution network, a day after detailing its almost EUR8 billion capital increase, as part of the measures aimed at managing its towering debt pile.
Enel, Europe's most-indebted utility, said its board approved the sale of an 80% stake in its gas grid to funds F2i SGR and Axa Private Equity, for EUR480 million, adding the sale will cut its consolidated net debt by over EUR1.2 billion. It expects to close the deal by the end of the summer.
In March, Enel announced plans for a capital increase of up to EUR8 billion, as well as other multi-billion-euro measures, to pay off a large chunk of debt and avert credit agency downgrades.
Among the measures presented in March was a EUR10 billion asset disposal target, to allow the utility to lower its net debt to EUR41 billion by the end of 2010. Earlier this month, Enel said its net debt stood at EUR50.8 billion on March 31.
"We believe that the capital increase, together with the upcoming disposals, should help keep the A credit (agency) rating," Claudia Introvigne, an analyst at Banca Leonardo, wrote in a note to clients. She has a "Buy" rating on Enel.
Late Thursday, Enel said it will sell nearly 3.218 billion new shares for a total of EUR7.98 billion, or EUR2.48 a piece. This represents a discount of 44% to Thursday's closing price of EUR4.43.
The discount "is exactly in line with those of similar deals," said Enel Chairman Piero Gnudi, on the sidelines of a conference in Rome Friday.
"The decision on the very low issue price is aimed at favoring the success of the capital increase," wrote Banca Leonardo's Introvigne in her note.
The Rome-based company is controlled by the government with a roughly 32% stake. The government has said it will subscribe to its part of the rights issue. The utility has about 1.3 million shareholders, which are roughly equally split between institutional and retail investors.
Enel has also said the underwriting banks have agreed to take up any of the rights issue that isn't subscribed up to a value of EUR5.5 billion, effectively guaranteeing the success of the capital increase.
Net debt at the former Italian power monopoly has jumped since it bought a majority stake in Spain's Endesa SA (ELE.MC). Net debt is expected to mushroom further after it agreed earlier to this year to buy a further 25% stake in Endesa for more than EUR11 billion.
As incumbents' market share at home has been capped by regulators, utilities pushed abroad in order to expand. Enel has been among the most aggressive, snapping up key companies in the Slovak Republic, Romania and Russia - seen by many as the final frontier for the electricity sector.
At 1158 GMT, Enel shares were down EUR0.20 or 4.4% at EUR4.23, underperforming a slightly higher overall market.