July 26, 2018 / 5:50 AM / in 8 months

Utility Suez to sell stake in U.S. arm for $601 million to strengthen balance sheet

PARIS (Reuters) - French waste and water group Suez (SEVI.PA) will sell a 20 percent stake in its United States regulated water business to pension fund PGGM for $601 million, to help strengthen its balance sheet again after last year’s acquisition of GE Water.

Suez expects the sale of Suez Water Resources - the parent company for all its regulated water activities in the United States - will be completed by the first half of 2019.

In March 2017, Suez boosted its industrial water treatment business with the $3.4 billion acquisition of GE Water from General Electric. The unit has now been integrated into Suez and renamed as ‘Water Technologies and Solutions’ (WTS).

Suez chief executive Jean-Louis Chaussade told reporters on Thursday that the sale of that U.S. arm would help improve Suez’s debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios.

Shares in Suez, which also posted higher first-half profits, edged up by 0.7 percent in early session trading.

“After an operation like WTS, we needed to restore our debt to EBITDA ratios by doing a few divestments,” said Chaussade.

At the end of June, Suez’ net financial debt stood at 9.3 bln euros while its core earnings before interest, tax, depreciation and amortization (EBITDA) first-half core earnings rose 4.4 percent to 1.32 billion euros ($1.55 billion.

Chaussade said he wanted to bring Suez’s net debt to core earnings ratio down to 3, from 3.5 at present.

He also said U.S. regulated water activities were enjoying peak valuations at the moment and that it made sense to crystalise on that value.

The U.S. regulated water activity was sold at 15 times core earnings and 30 times net profit, and Chaussade added he was looking forward to working with PGGM, which is already a minority Suez shareholder with a stake of 0.55 percent.

The proceeds of the sale will help Suez finance capital expenditures in the U.S regulated water sector, which will increase from $250 million to about $320-350 million.

He added that Return on Equity (ROE) on these assets is fixed at about 10 percent by U.S. regulators.

Suez’s first-half revenues rose 11.4 percent to 8.35 billion euros, while its EBIT (earnings before interest and tax) advanced by 2.3 percent to 607 million.

One particularly strong area was its European recycling division, where revenues grew 2.5 percent to 3.12 billion euros.

Revenues at Suez’s WTS arm also jumped from a restated 215 million a year ago to 1.11 billion euros, as the GE Water activities were integrated.

Suez confirmed its 2018 earnings guidance for revenue growth of about nine percent and growth in EBIT (earnings before interest and tax) of about 10 percent, both at constant exchange rates.

Reporting by Geert De Clercq; Editing by Sudip Kar-Gupta

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