Edison SpA (EDN)’s board is set to meet on Dec. 21 to assess its capital needs as Italy’s second-largest utility faces debt repayments and the renegotiation of supply contracts, two people with knowledge of the plans said.
The board is expected to discuss in Milan a funding gap, estimated at about 1 billion euros ($1.3 billion) by Standard & Poor’s over the next year to 24 months, said the people, who declined to be named because the talks are private. Edison’s credit profile will also be discussed to determine whether its funding needs should exceed that figure, the people said.
Edison, owned by Electricite de France SA and Italian shareholders led by A2A SpA (A2A), in October reported a nine-month loss because of costly gas contracts, writedowns and higher taxes. Edison is also renegotiating gas contracts linked to crude oil prices that have obliged the power producer to pay more for the fuel than it can sell it for.
The talks will examine strengthening Edison’s capital structure to enable it to improve its credit profile and tap debt markets more easily, said one of the people. A statement may follow the meeting, the people said.
Edison’s credit profile “exhibits non-investment grade characteristics on a standalone basis,” Moody’s Investors Service said in a report on Dec. 7, while placing Edison’s Baa3 ratings on review for a downgrade. The ratings company said Edison has been hit by the weak outlook for the power and gas industry in Italy amid a “strained” macroeconomic environment and oversupply of gas.
A spokesman for Edison was not immediately available. A spokeswoman for EDF (EDF) declined to comment.
EDF, which is trying to take control of Edison, owns 20 percent of the Italian company directly and a further 30 percent through a company known as Transalpina di Energia. A2A and its partners own 30 percent through Transalpina.
Edison said earlier this month its forecast for 2012 earnings before interest, taxes, depreciation and amortization, or Ebitda, is in line with the market’s consensus, though reaching the target depends on the successful outcome of negotiations for two gas contracts. Preliminary 2011 operating results are expected to be in line with guidance of Ebitda of “not less than 900 million euros.”
EDF and Italian shareholders have delayed implementing a plan for the French company to take control of Edison. EDF, based in Paris, and the shareholders said Dec. 1 takeover talks will continue until the end of the year. Shareholders were supposed to find an agreement by Nov. 30.
EDF is concerned that continued delays in finding an agreement are hurting Edison and have exposed the company to a possible ratings downgrade, people with knowledge of the matter said last week.
That has prompted EDF to consider a forced auction as a possible solution, they said.
S&P on Dec. 5 lowered its long-and short term corporate credit ratings on Edison to BBB-/A-3 from BBB/A-2.
On Dec. 8, the ratings company placed the long-term corporate credit rating of A- for Enel SpA (ENEL), Italy’s largest utility, on CreditWatch with negative implications.