Bloomberg News

Red Electrica Falls After Unit Nationalized: Madrid Mover

May 02, 2012

Red Electrica Corp. (REE) SA fell the most in more than two weeks in Madrid trading after Bolivian President Evo Morales said he would nationalize the Spanish grid operator’s unit in the South American country.

The shares dropped as much as 3.5 percent to 31.725 euros, the most intraday since April 13, and traded at 31.895 euros at 11 a.m. in Madrid, where there’s a local holiday today. In comparison, the Ibex 35 main share index declined 1.4 percent.

Morales in a May Day speech yesterday announced he was nationalizing the business, saying Red Electrica hadn’t invested enough in Bolivia. The decision occurred two weeks after Argentina expropriated oil producer YPF SA from Spanish parent Repsol YPF SA. (REP) An independent auditor will decide what compensation Alcobendas, Spain-based Red Electrica should be paid, accounting for back taxes and environmental damage, Bolivia’s state news agency said.

“It is easy to define the Bolivian initiative as bad news,” Roberto Mascarello, an analyst at Kepler Capital Markets, said in a note, confirming his buy recommendation on the stock. “However, the valuation impact could be very limited, even in the case of the independent adviser concluding its assessment with a valuation well below the fair value.”

Spain, which holds a 20 percent stake in the grid operator, will be “vigilant” to make sure a fair price is paid, Economy Minister Luis de Guindos said today in Brussels. Bolivian officials have “guaranteed” compensation, he said.

The nationalization won’t have a “significant impact” on group earnings as it accounts for 1.5 percent of revenues, the company said today in a filing. It remains to be decided how the price will be determined, it said. Red Electrica, which bought the company in 2002, has invested more than $60 million since then, Antonio Prada, a spokesman, said by phone.

Bolivia’s decision to nationalize the unit sends a “negative signal to international investors,” an EU spokesman, John Clancy, said today in Brussels.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net


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