Edi­son to weigh cap­i­tal in­crease of more than 1 bil­lion eu­ros as profit drops

The Pak Banker - - Company& -

OT­TAWA: Edi­son SpA, Italy's sec­ond-largest power pro­ducer, is weigh­ing a cap­i­tal in­crease of more than 1 bil­lion eu­ros ($1.32 bil­lion) to strengthen its bal­ance sheet as un­prof­itable gas-sup­ply con­tracts threaten to fur­ther erode earn­ings, peo­ple with di­rect knowl­edge of the sit­u­a­tion said.

Edi­son's earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion next year may be 30 per­cent be­low an­a­lysts' con­sen­sus ex­pec­ta­tion of about 1.35 bil­lion eu­ros, and may be 50 per­cent be­low depend­ing on the out­come of talks with sup­pli­ers in­clud­ing Rus­sia's OAO Gazprom, said the peo­ple, who de­clined to be iden­ti­fied be­cause the in­for­ma­tion isn't pub­lic.

Fall­ing en­ergy de­mand may also force Mi­lan-based Edi­son to write down the value of its stake in Ital­ian util­ity Edipower by about 40 per­cent and Egyp­tian off­shore gas field Abu Qir by about a third, the peo­ple said. Edi­son's largest share­hold­ers are Elec­tricite de France SA and Ital­ian util­ity A2A SpA. Edi­son is los­ing money on sup­ply con­tracts be­cause it's pay­ing more for nat­u­ral gas im­ports than it can sell the fuel for. The com­pany, car­ry­ing net debt of al­most 4 bil­lion eu­ros at the end of the third quar­ter, said in Oc­to­ber the con­tracts will neg­a­tively im­pact 2010 Ebitda by 300 mil­lion eu­ros. Edi­son's credit rat­ing was cut one notch to BBB by Stan­dard & Poor's last month. Shares of Edi­son slumped as much as 6.3 per­cent, the steep­est in­tra­day de­cline in seven months. The stock was 5.4 per­cent lower at 0.88 eu­ros as of 9:22 a.m. in Mi­lan. A2A re­treated 3.1 per­cent to 1.045 eu­ros and EDF de­clined 1.4 per­cent to 31.52 eu­ros in Paris.

A cap­i­tal in­crease was dis­cussed by Edi­son's board ear­lier this month and a de­ci­sion about whether to pro­ceed hasn't been made, said the peo­ple. In­vest­ment bankers are study­ing var­i­ous op­tions to strengthen the com­pany's bal­ance sheet, in­clud­ing a cap­i­tal in­crease, they said.

An Edi­son spokesman couldn't im­me­di­ately com­ment when con­tacted by mo­bile tele­phone. EDF spokes­woman Ca­role Trivi wasn't im­me­di­ately avail­able for com­ment in Paris. A call to the A2A press of­fice wasn't im­me­di­ately re­turned.

Edi­son, which uses gas in power gen­er­a­tion and sup­plies it di­rectly to cus­tomers, may have to write down the book value of its 50 per­cent stake in Ital­ian power generator Edipower to about 2.2 bil­lion eu­ros from 3.6 bil­lion eu­ros, the peo­ple said.

In Italy, de­mand for en­ergy has been de­clin­ing amid an eco­nomic slump while Edi­son is pay­ing more for nat­u­ral gas than it can sell it for due to pro­cure­ment con­tracts signed when oil prices were higher.

"The group's fi­nan­cial met­rics have de­te­ri­o­rated ma­te­ri­ally as a re­sult of pres­sures on earn­ings and cash flows in light of chal­leng­ing mar­ket con­di­tions in Italy," S&P said in a Nov. 2 re­port. The rat­ings com­pany also cited the ac­qui­si­tion in Jan­uary 2009 of a multi-year con­ces­sion to de­velop and ex­plore the Abu Qir field for more than 1 bil­lion eu­ros and a fail­ure to rene­go­ti­ate gas con­tracts. Edi­son had ex­pected to con­clude the sale of a stake in the Abu Qir field ear­lier this year, Edi­son Chief Ex­ec­u­tive Of­fi­cer Um­berto Quadrino said in Oc­to­ber 2009. The com­pany was never able to se­cure a buyer for the stake, a per­son with knowl­edge of the mat­ter said. Edi­son said in Oc­to­ber its debt would be close to 3.6 bil­lion eu­ros at the end of the year. Moody's down­graded the longterm se­nior un­se­cured rat­ings of Edi­son to Baa3 in Oc­to­ber.

A rights of­fer­ing would re­quire share­hold­ers to buy more stock or risk di­lut­ing their stakes. EDF con­trols about 50 per­cent of Edi­son. A2A, Italy's largest mu­nic­i­pal util­ity, owns 51 per­cent of the hold­ing com­pany Delmi Spa, which jointly owns Transalpina di En­er­gia Srl with EDF. Transalpina has 61.2 per­cent of Edi­son. -Bloomberg

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