December 18, 2015 / 3:02 PM / in 3 years

Endesa to remain cash cow until EU reforms power market -Enel CEO

* Endesa to maintain 100 pct payout ratio for now

* Enel will review policy in 2017, says could change

* EU power market reform could create opportunities

* Endesa top performer in EU utilities index since 2007

By Geert De Clercq

PARIS, Dec 18 (Reuters) - Endesa, the Spanish arm of Italian utility Enel, will keep paying out all of its earnings as dividends for now, and Enel will only decide on its future plans for the business when Europe has completed its power market reforms, Enel’s CEO said.

Endesa paid out 100 percent of its earnings to shareholders this year and said last month it plans on a dividend payout of 100 percent of net profit in the 2015-2019 period.

That left some investors wondering how Endesa will finance growth, although its management has said that gearing is not a problem at the moment and that the company could easily borrow for expansion.

Enel CEO Francesco Starace told Reuters in Paris that the Italian company would take a decision on Endesa’s dividend policy in 2017 and he did not rule out this policy could change.

“First of all, it is nice to have a cash machine ... others might like to have that too,” he said, adding that whether or not Endesa keeps its domestic focus will largely depend on the European Commission’s planned electricity market reform next year.

“We are working to prepare Endesa for a future life, which will probably be decided once we know where Europe is going,” Starace said.

Enel acquired Endesa in 2008. Last year it also bought Endesa’s Latin American operations for 8.25 billion euros ($8.9 bln) and Endesa then paid a special dividend to shareholders for the same amount with the proceeds, followed by a second special dividend of another 6.3 billion euros.

The operations leave Endesa - 70.1 percent owned by Enel - as a purely domestic player with 21 gigawatt of nuclear, coal, hydro and gas capacity and more than 11 million customers.

Under an ideal scenario, Starace said, Europe would develop a single energy market with clear long-term pricing signals and a single power dispatching system across most EU countries that would select the most efficient plants across more than one member state.

“If that dream comes through, we will find that in Endesa we have an incredibly valuable vehicle for growth. It has good management and efficient generation and distribution, so it could be the right vehicle to grow in Europe,” he said.

EU energy chief Maros Sefcovic said earlier this year he wants to rebuild the EU power market “from scratch”, but has given little detail about his plans.

Europe’s power markets are in deep crisis, with power prices at decade lows after demand fell during economic recession and energy efficiency and steady growth of renewable energy adds more supply to a market already in overcapacity.

Major differences in national energy policies - with some countries betting on renewables, some on nuclear and coal - and a lack of interconnection between markets have added to the power industry’s problems. Many EU utilities are scaling back investment in Europe and seeking growth in emerging markets.

Starace said the new European market design does not necessarily have to be finalised next year, but once at least the direction of the reform is clear, Enel could decide what to do if anything with Endesa outside of Iberia.

Analysts doubt Endesa will stray far from its business in Iberia for now.

“I doubt Enel will put its money in Europe in the near future,” said one analyst who declined to be identified.

Endesa’s other shareholders, including about a dozen major investment funds with stakes between 1 and 0.30 percent of capital, cannot complain about Enel’s focus on raising cash from the group.

Endesa’s share price has more than tripled since mid-2012 and is the only integrated utility in the Stoxx 600 Utility index to trade above its 2007 close, with a gain of more than 30 percent since then. ($1 = 0.9236 euros) (Additional reporting by Jose Elias Rodriguez in Madrid; Editing by Susan Fenton)

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