* Sale to cut Veolia debt by 1.45 bln euros
* Buyer is Rift Acquisitions
* Veolia to keep 10 pct stake in UK regulated water
* Shares up 1 pct
PARIS, June 28 French utility Veolia
Environnement has sold a majority stake in its
regulated UK water business for 1.24 billion pounds ($1.92
billion) including debt, notching a milestone in its overhaul
aimed at returning to profitability and cutting debt.
It is the first significant divestment since Chairman and
Chief Executive Antoine Frerot announced a reorganisation in
December to cut debt that had piled up under an acquisition
spree by Veolia's founder and head Henri Proglio.
The sale will shave 1.45 billion euros off the 14.7 billion
euros debt Veolia had at the end of last year and help it to
meet its goal to cut debt to below 12 billion euros by the end
of 2013 by selling assets worth 5 billion euros.
Analysts said that the price Veolia will receive for the
unit, which is widely seen as the most attractive it has put up
for sale, beat expectations and the strength of the pound
against the euro had helped prop up the deal's value in euros.
"In the current context, regulated assets are very coveted,
they are very defensive and not exposed to economic growth,"
said Exane BNP Paribas analyst Yohann Terry.
Shares in the waste, water and energy group, which have
lost 46 percent of their value in the last 12 months, were up
nearly 1 percent at 10.29 euros by 1109 GMT, outperforming a 0.2
percent rise in the wider utilities index.
"The timing and the exit price exceeded our expectations by
a couple of months and by about 150 million euros respectively,"
Citibank's head of utilities research Sofia Savvantidou wrote in
a research note.
Under the agreement with the asset's buyer, Rift
Acquisitions, Veolia will keep a 10 percent stake in the
regulated water business for at least 5 years. It will also keep
its non-regulated water business, Veolia said in a statement.
Keeping a toehold in the regulated water business will
enable Veolia to keep synergies and co-operation agreements with
its non-regulated water business, analysts pointed out.
Rift Acquisitions Ltd is a joint venture of a Prudential Plc
managed infrastructure investment fund and Morgan
Stanley Infrastructure partners.
The sale of Veolia's UK regulated water business is one of
several assets on the block, such as its 50 percent stake in
Veolia Transdev transport joint venture with French state bank
Caisse des Depots and its U.S. solid waste business.
Veolia's restructuring also includes exiting roughly half of
the 70 countries where it is present.
Rating agencies like Moody's and Fitch have been cutting
Veolia's debt rating over the past months to Baa1 and BBB+
respectively, making it harder for the company to borrow money
and making it the worst rated of French utilities like EDF
, GDF Suez and Suez Environnement.
Veolia's aggressive past expansion shows in its long-term
debt which stands at 2.36 times its equity compared to 1.61 at
its direct rival Suez Environnement, 1.37 at EDF and 0.69 times
at GDF Suez.
Frerot has come under fire from Proglio, who is now head of
state-controlled power company EDF, and from its main
shareholder Caisse des Depots, for his restructuring plans.
Although Frerot, once Proglio's right hand man, managed to
survive a board coup the UK asset sale is seen as merely one
step that could help him stay in the seat.
"Frerot will not so much be judged on this but more on
Transdev and on the earnings," Exane BNP Paribas's Terry said.
"This transaction shows that management is committed on
delivery and at least the disposal program should become fully
reflected in the trading price," Citi's Savvantidou wrote,
rating the stock "buy" with a share target of 15.5 euros.
International law firm Simmons & Simmons advised Veolia on
the deal and Lovells advised Rift Acquisitions.