Enel highlights its generous dividend policy

Oct 10, 2004 02:00 AM

Italy's energy conglomerate, Enel, has been highlighting its generous dividend policy during its road show as it tries to persuade investors to buy up to 20 % of its stock.
The Italian treasury, which wants to raise nearly EUR 8 bn ($ 9.8 bn, £ 5.5 bn) from what will be this year's largest global placement, is hoping a successful share offering will erase the memory of the first privatisation of Enel, when its stock market performance failed to reward shareholders. Enel's shares are still trading more than 20 % lower than at the time of the initial public offering (IPO) six years ago.

Afterwards the treasury will own 30 % of Enel while Cassa Depositi e Prestiti, a state holding company, will have just over 10 %. The Italian treasury plans to use the proceeds of the sales to reduce Italy's debt mountain, currently about 105 % of gross domestic product (GDP) and well over European Union limits.
In the original flotation, in 1999, the treasury raised about EUR 16 bn through the sale of morethan 30 % of Enel's shares. More than 3.8 mm Italian retail investors bought shares in the electricity monopoly, confident that they were on to a winner. But the treasury's desire to maximise the proceeds meant Enel's shares were priced too high and those investors allocated shares have never seen the price climb above the starting level.

A year ago the treasury sold another 6.6 % to Morgan Stanley in a block trade. The bank made a loss on the deal when it sold the shares on to institutional investors. This time the treasury is hoping retail investors will buy Enel's shares in large numbers. It is even looking to sell Enel shares to the retail market in Japan as well as institutional investors. Japan allows companies to market share offerings in the country without translating documentation into Japanese.
Enel is looking to reward shareholders who have stayed with the company -- it still has more than 2 mm retail investors -- and bring in new ones. Those who bought shares in 1999 will be rewarded with an extra helping if they buy more this time round.

On the road show, which visited Milan and London, Enel's CEO, Paolo Scaroni, gave a breakdown of the dividend windfall that shareholders can expect. They will receive EUR 0.33 a share dividend in November, which has resulted from the disposal this summer of 50 % of Enel's transmission network, Terna.
This year's profits are expected to result in a dividend of at least EUR 0.36 to be paid in 2005. It could be higher once the European Commission approves a plan that it will allow the government to repay "stranded costs", or the loss-making investments that Enel was obliged to make as a public monopoly. The company is also planning another extra dividend after the sale of a further 45 % of Terna, expected to take place next year.

Enel has said that it intends to sell a stake in its non-strategic telecommunications business, Wind, next year. The company, which includes a fixed-line business and a mobile network, is estimated to have an enterprise value of EUR 10 bn. The sale of a stake is likely to generate another bumper payout for shareholders.
Although Enel's generous dividend policy will probably continue until 2007 there are questions about its sustainability. Scaroni, who arrived at the firm in 2002 and refocused the company on its core energy businesses, is looking at expansion. At the road show in Milan he said the time was right to look for acquisitions inside and outside Italy. He said foreign expansion would target countries where energy markets were being liberalised.

Earlier, it was announced that Enel's EUR 840 mm bid for a 66 % stake in the Slovak company SE had been accepted. It produces around 85 % of the country's power through a network that includes three nuclear power stations.
In Italy a ban on nuclear power stations has led producers to depend on oil and coal. Enel is not allowed to pass on rising fuel costs directly to customers because electricity price levels are controlled by government. Its profitability is also hit during periods of rising demand when it has to use inefficient plants to produce extra electricity.

Source: PowerMarketers
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