RPT-UPDATE 2-Enel to sell assets as earnings outlook worsens

Wed Mar 13, 2013 8:43am EDT

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* Sees 2013 EBITDA at 16 bln euros vs 16.7 bln in 2012

* To sell 6 bln euros of assets, issue 5 bln euros of debt

* 2012 profits slump after Endesa goodwill writedown

* Shares down 5 pct

By Stephen Jewkes

MILAN, March 13 (Reuters) - Italy's biggest utility Enel plans to sell 6 billion euros ($7.8 billion) of assets and cut costs to reduce debt after southern Europe's economic slump forced a dramatic reduction in its profit outlook.

Enel is one of Europe's most indebted utilities, but it is by no means alone in its struggle against undermined power demand, squeezed margins, EU-driven energy efficiency measures and greater use of renewable energy.

Peers including Germany's E.ON and French leviathan GDF Suez have already announced extensive disposal plans and cost-saving measures as they, too, seek to cut debt and protect their credit ratings.

Enel said on Wednesday that core earnings are expected to fall to about 16 billion euros this year, from last year's 16.7 billion euros, and to stay at that level in 2015.

Its shares were down by 5 percent at 1009 GMT, with investors spooked by the weak outlook, while the European utilities sector was virtually flat.

"The asset sales stand out, but it won't be easy given all the disposals other utilities are planning," said Nomura analyst Javier Suarez. "It simply reflects a very tough environment for Europe's utilities."

Enel Chief Executive Fulvio Conti, however, has every faith in the strategy. "Like at the Vatican chimney, there is black smoke coming out of the market chimney. White smoke should come out of that chimney (after our plan kicks in)," he said in a conference call with analysts.

SHIFTING FOCUS

Europe's No. 2 utility in terms of installed capacity said it would cut costs in mature markets by 4 billion euros, shifting focus away from its ailing core markets of Italy and Spain to Eastern Europe and Latin America.

The Italian utility, which controls 92 percent of Spain's Endesa, is hoping to reduce its debt mountain to 37 billion euros in 2014 from last year's 42.9 billion euros.

Like other big European utilities, Enel is burdened by the debts incurred through rapid expansion before the 2008 crisis. Its ratio of net debt to market capitalisation is 1.6, against 0.9 for GDF, 1.5 for EDF and 0.6 at E.ON, Thomson Reuters Starmine data shows.

In a recent note JP Morgan said a downgrade by ratings agency Moody's, to Baa3 from Baa2, could shave about 4 percent off earnings per share for Enel in 2015. "More importantly, (it) would leave the group just one-notch above 'junk' (status)."

Rising political uncertainty in Italy after February's inconclusive elections has reignited sovereign debt concerns, putting added pressure on state-controlled groups such as Enel.

The group said it would issue about 5 billion euros of hybrid bonds to shore up its capital and spend around 8.5 billion euros to buy out minority owners of some of its subsidiaries.

Enel said net profit last year fell 79 percent, mainly because of a goodwill writedown of 2.575 billion euros on its Endesa activities.

The company confirmed a dividend payout policy of at least 40 percent and said its 2012 payout would be 0.15 euros, against 0.26 euros the previous year. ($1 = 0.7680 euros)

(Editing by David Goodman)

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