September 21, 2015 / 2:17 PM / 3 years ago

EDF's Italian, Polish assets look like a hard sell

MILAN/WARSAW/PARIS (Reuters) - Italian gas-fired and Polish coal-fired power plants don’t sit easily in EDF’s low-carbon generation strategy but selling them might be hard and raise less than what the cash-strapped French utility needs.

EDF already needs to borrow money every year just to pay its dividend. The takeover of struggling Areva’s nuclear arm, a project to build nuclear plants in Britain and the need to upgrade its ageing French nuclear fleet will cost state-controlled EDF tens of billions of euros in coming years.

In July, EDF announced a “strategic review” of its fossil-fuel fired power generation assets in continental Europe and fossil fuel production and sales outside France.

New CEO Jean-Bernard Levy said he would take a close look at fossil-based assets outside France and Britain and said EDF’s future was in low-carbon power.

Chief Financial Officer Thomas Piquemal confirmed EDF was looking at how Italian unit Edison — notably its power and gas activities and its hydrocarbon exploration and production — fits that strategy and that “everything is possible”.

Industry sources say Levy plans to visit Edison’s headquarters in Milan on Wednesday, raising concerns he might announce a sale of part of the firm or refocus it on areas such as renewables.

“EDF wants to introduce a strategy of reducing rather than increasing activities, a remodeling of the business,” an industrial source familiar with the matter told Reuters.

EDF confirmed Levy will brief Edison managers on group strategy. It declined comment on a possible sale.

EDF-Edison generated about 7 pct of Italy’s electricity last year, with capacity of 7.3 gigawatts, of which 5.7 GW was thermal, the rest hydropower and renewables. Edison also accounted for 17.9 percent of Italian gas imports. 

Although margins have been squeezed by falling oil prices and low domestic power demand, Edison is a cash generator, with 2015 target core earnings of one billion euros.

“NO EASY SELL”

EDF does not publish the book value of its Italian and Polish assets, but at a multiple of eight times core earnings, Edison would be worth around 8 billion euros ($9 billion)according to one analyst. That does not mean EDF could get that much for Edison, which it bought full control of in 2012.

“Italy would not be an easy sell. The market has excess installed thermal power capacity,” said BMI Research analyst Francesco Menonna.

He said many thermal plants are idled or running below capacity as renewables have priority grid access and utilities like Enel and A2A have retired or plan to retire several gigawatts of thermal power stations.

Banking sources said EDF has not yet hired advisers for an Edison deal and ruled out a full Italy exit, as Edison’s hydro and renewables assets fit in its low-carbon strategy.

“It is no secret EDF is looking at alternatives for its Italian businesses,” a sector banker said.

Another senior banker said he saw no buyers for all of Edison, but said its upstream assets are sellable. A source inside Edison said a likely solution is be a break-up, not a sale of the whole company.

Menonna said A2A — which plans to create a new firm for its thermal assets — might be interested in the Edison equivalent.

Sources say Czech EPH, one of the few firms to scoop up thermal assets sold by European utilities, is a potential buyer.

In January, EPH bought Italian gas- and coal-fired plants with capacity of 4.5 GW from E.ON for an enterprise value estimated at 500-600 million euros.

EPH is also in talks with Enel about a stake in Slovakia’s Slovenske Elektrarne and has expressed interest in buying German coal-fired plants.

Industry executives say EPH could also be a possible buyer for EDF’s Polish assets — about 1.7 GW of coal-fired stations according to EDF Poland - as well as Poland’s third largest power group Enea, which may have more coal than it can burn after buying coal supplier Bogdanka.

A Polish coal industry executive said that EDF’s generation in Poland is hard to value following major writedowns of thermal assets by market leader PGE and that EDF Poland may be forced to follow suit.

Additional reporting by Giancarlo Navch in Milan and Pamela Barbaglia and Freya Berry in London; Writing by Geert De Clercq; Editing by Keith Weir

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