S&P cuts Enel's outlook, sees risks to asset sale plan

A prototype of a bifacial photovoltaic module is seen inside Italian utility Enel's solar panel gigafactory in Catania, Italy, November 28, 2022. REUTERS/Antonio Parrinello

MILAN, Dec 9 (Reuters) - Credit ratings agency S&P cut its outlook for Enel (ENEI.MI), citing execution risks around a 21-billion euro ($22.18 billion) asset disposal plan the Italian utility announced last month.

The agency affirmed its 'BBB+/A-2' long- and short-term issuer ratings for the Rome-based group, and its ratings on the company's debt.

Europe's second-biggest utility in November pledged to focus on six core countries and sell assets to lower its net debt to 51 billion-52 billion euros by the end of next year from 69 billion euros at end-September.

"The negative outlook reflects that the company's large asset rotation plan is subject to execution risk while high capital expenditure and sizable shareholder remuneration are weighing on the group's financial risk profile," S&P said in a statement.

According to S&P calculations, which also take into account Enel's margin call requirements on energy derivative contracts, the group's adjusted net debt could peak in 2022 at about 82 billion euros.

The ratings agency calculates that the ratio between Enel's consolidated adjusted funds from operations (FFO) and its debt will remain below a 20% threshold in 2023.

S&P added it would continue to monitor the group's efforts to reduce the ratio between net debt and its earnings before interest, taxes, depreciation and amortisation (EBITDA) to under 3 times.

An Enel spokesperson on Friday said the group's strategic plan envisaged a net debt reduction of around 9 billion euros already in 2023, with a substantial improvement in leverage ratios starting from next year.

They said the company's net debt to EBITDA ratio was projected to fall to 2.4-2.5 times in 2023, from 3.0-3.3 times currently, and remain flat throughout 2025.

FFO to net debt will increase to 28% in 2023 from its current 17%, before also remaining flat throughout 2025," the spokesperson said.

Government actions in Italy and Spain to shield households and companies from soaring energy bills created cash flow strains for Enel, which reported negative working capital of 5 billion euros at the end of September.

"We forecast that Enel will continue to generate significant negative discretionary cash flow of about 4 billion euros in 2023, following 12.5 billion euro in investment, and dividends of around 5.5 billion euros," S&P said.

($1 = 0.9469 euros)

Reporting by Francesca Landini, editing by Alvise Armellini and Kirsten Donovan

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