European Infrastructure Finance Yearbook - Investing In Bonds ...

Publication Date:
Aug. 10, 2007
Issuer Credit Rating:
A/Watch Neg/A-1
Primary Credit Analyst:
Ana Nogales,
Madrid,
(34) 91-788-7206
Secondary Credit Analyst:
Peter Kernan,
London,
(44) 20-7176-3618
ENDESA S.A.
Rationale
The ratings on Spanish utility Endesa S.A. were
placed on CreditWatch with negative implications
on Sept. 6, 2005, at the start of what has since
been a very long and protracted bidding war for
this company.
On April 11, 2007, Italian utility Enel SpA
(A/Watch Neg/A-1) and Spanish construction
company Acciona S.A. (not rated) announced a
€41.3 per share conditional all-cash joint
takeover bid for the remaining 54% of Endesa’s
that they do not own. This represents an offer
value of nearly €25 billion. Enel has a 25% stake
in Endesa, and Acciona owns 21%. The offer has
received all regulatory approvals and is now
subject only to shareholder approval.
The CreditWatch status reflects the risks and
uncertainties that surround this new bid, as well
as those presented by Endesa’s potential future
strategy and financial structure after the
prospective change of ownership. Furthermore,
Endesa’s business profile will change if the offer is
successful, owing to the asset split agreed between
the new bidders and German utility, E.ON AG
(A/Stable/A-1). The agreement stipulates that
E.ON will receive a portfolio of Endesa assets in
Spain, Turkey, and Poland, as well as Endesa’s
share of Endesa France and Endesa Italia, and
assets in Spain owned by Enel (through Enel-
Viesgo), for a total estimated value of
€10 billion.
The terms and conditions of the bid reflect Enel
and Acciona’s March 26, 2007, agreement. The
offer is conditional upon a minimum acceptance
of 50% of the share capital and the amendment
of some of Endesa’s bylaws, including the removal
voting-right restrictions. Acciona will purchase
about 4% of Endesa’s capital, and Enel will
purchase the rest of the tendered shares; both
companies, however, will have equal
representation on Endesa’s board.
One of the world’s largest electricity utilities,
Endesa has total installed capacity of 47,385 MW
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
UTILITIES
and 22.7 million customers. It has a market share
of about 40% of Spain’s electricity production,
distribution, and supply. This strong domestic
position is one of the main rating supports.
Operations in Spain and Portugal provided about
55% of EBITDA in 2006 and 52% in the first
half of 2007.
Short-term credit factors
The short-term rating is ‘A-1’, reflecting Endesa’s
acceptable liquidity. At June 30, 2007, the
company (excluding subsidiary Enersis S.A.
{BBB/Stable/--}) had €6.2 billion in undrawn,
committed facilities, and about €0.3 billion in
cash and equivalents, which together cover the
final dividend paid against 2006 earnings on July
2, 2007, and debt maturing over the next
23 months.
At the same date, Enersis had €0.5 billion in
undrawn, committed facilities, and about €0.5
billion in cash, together covering debt maturing at
Enersis over the next 19 months. Endesa’s debt
maturity schedule is manageable, and the average
life of the debt is 5.3 years.
According to Endesa, there are no cross-default
clauses for the debt at Enersis or any of its
subsidiaries, and these entities are financed on a
nonrecourse basis.
Endesa generated funds from operations of
about €4.6 billion in 2006. This strong
performance should continue, mitigating the
financial-flexibility constraints arising from the
utility’s large capital-expenditure plan and
generous dividend policy. Endesa is committed to
paying out 100% of capital gains on asset
disposals and increasing ordinary dividends by at
least 12% annually. This will result in the
payment of €9.9 billion in dividends over 2005-
2009, of which €4.4 billion has already been
paid. A change in financial, investment, and
dividend policies may result, however, from the
prospective change in control. ■
NOVEMBER 2007 ■ 41