Enel Said to Have Rejected Advice for Lower EGP Range

Enel Chief Executive Officer Fulvio Conti
Enel Chief Executive Officer Fulvio Conti, seen here, said on Oct. 14 the Rome-based company will pay out 30 percent of net income to investors. Photographer: Alessandra Benedetti/Bloomberg

Enel SpA rejected advice from investment banks that it should set a lower price range for its renewable-energy unit’s initial public offering, according to five people familiar with the discussions.

Italy’s largest utility set a range on Oct. 14 valuing Enel Green Power SpA at 9 billion euros ($12.4 billion) to 10.5 billion euros, even after at least four of its 10 IPO advisers recommended a wider range with a lower base, the people said. Some of the banks proposed Enel should value the business at as little as 7.5 billion euros, said two of the people, who declined to be identified because the talks are confidential.

“The stock is looking quite fully valued, at as much as 10 percent above our equity valuation” based on comparisons with the company’s competitors, Benita Barretto, an analyst at Berenberg Bank in London, wrote in a note to clients today. The company is worth about 7.9 billion euros, she said.

Enel plans to raise as much as 3.4 billion euros in Europe’s largest IPO since 2007 and Italy’s biggest in more than a decade, as it seeks to pay down debt. Europe’s most indebted utility aims to attract investors by offering dividends that are above average for the renewable-energy industry. The Rome-based company will pay out 30 percent of net income to investors, Chief Executive Officer Fulvio Conti said on Oct. 14.

‘Careful Assessment’

The range “is the result of a careful assessment of market feedback by the company and all its banking advisers,” a company spokeswoman said in an e-mailed statement. “Enel and all its advisers believe this to be a realistic range for what is an excellent asset.” She declined to be named, citing company policy.

Conti and Enel Chairman Piero Gnudi have placed orders for 100,000 shares, worth at least 180,000 euros each, the company said today.

Bank of America Corp., Intesa Sanpaolo SpA’s Banca IMI, Barclays Plc, Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Mediobanca SpA, Morgan Stanley, UniCredit SpA and Banco Bilbao Vizcaya Argentaria SA are managing the IPO.

Officials for Bank of America, Intesa Sanpaolo, Barclays, Credit Suisse, Goldman Sachs, JPMorgan, Mediobanca, Morgan Stanley, UniCredit and BBVA declined to comment.

After publishing research on EGP on Oct. 4, the banks sounded out investors on demand for the shares before recommending a price range during so-called premarketing, which detected interest among investors at a lower price, said the people. Banca IMI in its analyst note had valued EGP at as much as 10.6 billion euros based on trading multiples of rival companies, the note shows.

State Subsidies

Unlike Iberdrola Renovables SA and other competitors that rely on wind power, Enel Green Power has 44 percent of its capacity at hydroelectric plants. About 41 percent of its capacity comes from wind and 13 percent is geothermal.

The structure of the unit makes it less dependent on state subsidies, which have helped fund wind and solar panels, the company has said. Italy’s government reduced payments for solar-power projects this year, and Spain may follow suit.

Analysts at Banca IMI estimate that Enel Green Power will post earnings before interest, taxes, depreciation and amortization of 1.3 billion euros this year, up about 8 percent from 2009.

The company’s debt should rise to no more than 4.3 billion euros in 2012 and installed capacity should rise by 9 percent annually, Banca IMI said.

Enel shares climbed 1 percent to 4.04 euros in Milan trading, for a market value of 38 billion euros.

The renewable-energy unit is slated to start trading on Nov. 4. Shares are on sale to individual and institutional investors.

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