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Enel Green Power IPO's 'Rich' Price Deters Investors (Update1)
2010-10-27 09:43:52.694 GMT
(Updates to add increase in orders in fourth paragraph.)
By Elisa Martinuzzi and Zijing Wu
Oct. 27 (Bloomberg) -- Enel Green Power SpA is struggling
to lure investors to its 3.4 billion-euro ($4.7 billion) initial
public offering, Italy's biggest in more than a decade, because
they say the price is too high compared with competitors.
"There are many other incumbent securities out there, and
if they price it too much higher than the incumbents, it's going
to flop," said Josef Schuster, the Chicago-based founder of
IPOX Capital Management LLC, which oversees $3 billion. "It
needs to be quite competitive to get the deal done."
Enel SpA, Italy's biggest utility, is selling about a third
of the operator of wind, solar and hydro-electric power plants
to help cut its 54 billion euros of borrowings. The IPO values
the unit at 9 billion euros to 10.5 billion euros, more than at
least four of the banks managing the sale advised Enel, five
people familiar with the sale said Oct. 21.
Enel hasn't received orders for all the stock on sale,
three people with knowledge of the transaction said. The banks
managing the sale told potential investors this morning that
they now have orders for about 75 percent of the shares, said
one of the people, who declined to be identified because the
talks are private. Earlier today, the banks had orders for about
60 percent of the stock, another person said. The shares are on
sale for 1.80 euros to 2.10 euros each until Oct. 29.
'Too Rich'
The price "is too rich for us," said Edward Guinness, who
runs two energy funds for $50 million at Guinness Asset
Management Ltd. in London. The Guinness Energy Fund beat 95
percent of rival funds last year, data compiled by Bloomberg
show. "You're getting in at a time when things are pretty good
for EGP and the outlook is uncertain."
A spokeswoman for Enel declined to comment. Officials at
the banks managing the sale also declined to comment or weren't
immediately available.
"I'd like to see 1.70 euros," Schuster said. "Then, it
would make a good deal for an allocation."
At the bottom of the price range, EGP's enterprise value
would be about 9.7 times the company's earnings before interest,
tax, depreciation and amortization, or Ebitda. That's in line
with Spain's Iberdrola Renovables SA and below EDP Renovaveis
SA, MF Global analysts including Ashley Thomas said in a report
to clients yesterday. The range "should be cut to offer
upside," the analysts said.
Seeking Discount
"We would like to see a discount to the competitors,"
said Treasa Ni Chonghaile, who helps oversee 500 million euros
of alternative energy investments at Kleinwort Benson Group Ltd.
in Dublin, and is considering ordering stock at the bottom of
the range. "We would place a larger order if they cut the
price."
EGP is seeking to lure investors to the IPO by offering a
larger dividend yield than rivals including Iberdrola Renovables
and EDP Renovaveis. Enel Chief Executive Officer Fulvio Conti
has said EGP will pay 30 percent of its net income in dividends.
Unlike Iberdrola Renovables and other competitors that rely
on wind power, 44 percent of the power EGP generates comes from
hydroelectric plants across Italy. About 41 percent of its
capacity comes from wind and 13 percent from geothermal. That
mix makes the company less dependent on state subsidies that
have helped fund wind and solar panels, investors said.
"We like the hydro exposure because it's unsubsidized, but
the company is going to become more dependent on wind in the
future," said Zurich-based Thiemo Lang, who oversees about $1.4
billion of clean-energy holdings including the SAM Smart Energy
Fund. "Typically companies are sold at a discount to their
peers in an IPO," said Lang, the best-performing manager in New
Energy Finance's 2009 ranking of funds that invest in clean-
energy stocks. He declined to say if he'll order shares.
Bank of America Corp., Intesa Sanpaolo's Banca IMI SpA,
Barclays Plc, Credit Suisse Group AG, Goldman Sachs Group Inc.,
JPMorgan Chase & Co., Mediobanca SpA, Morgan Stanley, UniCredit
SpA and Banco Bilbao Vizcaya Argentaria SA are managing the IPO.
For Related News and Information:
Renewable energy top page: GREEN <GO>
Top Italy stories: TOP IT <GO>
Top energy: ETOP <GO>
--Editors: Edward Evans, Dylan Griffiths.
To contact the reporters on this story:
Elisa Martinuzzi in Milan at +39-02-8064-4218 or
emartinuzzi@bloomberg.net;
Zijing Wu in London at +44-20-7330-7613 or
zwu17@bloomberg.net.
To contact the editors responsible for this story:
Edward Evans at +44-20-7073-3190 or eevans3@bloomberg.net;
Daniel Hauck at +1-212-617-1697 or dhauck1@bloomberg.net.
