RWE Leads DAX Higher as It Details Split of Renewables Unit

  • Innogy to pay 70-80 percent of net income to shareholders
  • RWE credit risk falls as senior bonds transfer to new company

RWE AG led gains in Germany’s benchmark DAX index as the nation’s largest electricity producer provided details of the new renewable energy, grid and retail business that it’s splitting from its conventional power generation operations.

The new company, called Innogy, expects to pay out 70 percent to 80 percent of adjusted net income to shareholders, including a “full dividend” for 2016, RWE said in a presentation at its Capital Markets Day in London on Thursday. Shares rose more than 6 percent, while the cost of insuring RWE’s debt fell as it plans to transfer senior debt to Innogy.

By separating its conventional plants from renewables, the utility is seeking to counter the impact of Germany’s shift toward wind and solar generation, a policy that helped drive wholesale electricity prices to the lowest in more than a decade. RWE has said it intends to sell about 10 percent of Innogy in an initial public offering this year. While more stakes may be offered, it will keep a majority.

“The implicit statement that RWE plans to pay a dividend for this year is positive as is the payout ratio,” Guido Hoymann, an analyst at B. Metzler Seel. Sohn & Co., said by phone from Frankfurt.

Innogy will generate about 60 percent of its earnings before interest, tax, depreciation and amortization from regulated businesses, RWE said Thursday. The unit’s 2015 Ebitda was 4.5 billion euros ($5 billion), while it generated net income of about 1.6 billion euros from sales of 46 billion euros, based on combined financial statements. It will employ about 40,000 out of the 60,000 group’s staff.

Stock Listing

Innogy’s stock market listing is planned toward the end of 2016, RWE reiterated Thursday. Peter Terium, RWE’s and Innogy’s chief executive officer, will hand over leadership of the parent to his current deputy Rolf Martin Schmitz at that time, while the utility’s Supervisory Board Chairman Werner Brandt will also head Innogy’s board.

“There is a high degree of independence for RWE and Innogy,” Terium said in the presentation. “The independence of Innogy will generate the maximum value for the stock market, and that is a benefit to RWE.”

RWE will transfer all senior financial debt to Innogy, with the aim of “standalone” access to debt capital markets for the new company that will have a net debt ratio of four times Ebitda, according to the presentation. RWE will keep its hybrid bonds, with its policies on the capital unchanged and call decisions “generally taken only when due,” Vera Buecker, an RWE spokeswoman, said by e-mail.

Credit-default swaps on RWE’s debt fell 7 percent to 116 basis points, the lowest level since September, according to data compiled by Bloomberg. The yield on the utility’s 5.75 percent senior notes due 2033 fell 9 basis points to 2.71 percent, the lowest in a year. S&P Global Ratings downgraded RWE to BBB-, one step above junk, earlier this month.

“RWE can’t bear a lot of debt,” Metzler’s Hoymann said. “That’s why they’re transferring as much as possible to Innogy.”

RWE climbed 6.8 percent to close at 14.19 euros a share in Frankfurt. The stock has risen 30 percent since RWE first proposed the new structure on Dec. 1, and is the second-best performer in the DAX that lost 15 percent in the same period.

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