Iberdrola SA (IBE), the Spanish utility downgraded by Standard & Poor’s last week, is negotiating sales of wind farms in France, Germany and Poland as part of a plan to divest 2 billion euros ($2.6 billion) of assets before 2015.
The wind-park sales will take Iberdrola more than halfway toward its goal, the cornerstone of a program to cut debt by 5 billion euros in the period, Chairman Ignacio Sanchez Galan said in an interview. It already earned about 400 million euros from asset sales and is targeting a further 600 million to 800 million euros within five months, he said.
Iberdrola is trying to reduce borrowings to boost its debt- to-earnings ratio and avoid a further downgrade after S&P lowered its corporate credit rating to BBB from BBB+ on Nov. 28. By divesting assets in markets deemed “non-core,” the utility can shore up its balance sheet without hurting profit at home or in its other focus areas of Latin America, the U.S. and the U.K.
S&P cited concern that potential delays in securitizing the tariff deficit, the gap between costs and revenue in Spain’s power system, may harm the company. Iberdrola and its domestic peers have for years booked more revenue than they were permitted to collect as successive administrations kept power prices low, allowing 24 billion euros of debts to accumulate.
S&P’s concern proved unfounded when the government within days securitized 1.75 billion euros of utility debt, meaning it converted that amount into bonds, Galan said. Even so, the deficit will widen by 5 billion euros this year, he said late yesterday in Doha, where he’s attending United Nations climate talks.
Iberdrola, seeking to cut borrowings to 26 billion euros from the current level of more than 30 billion euros, intends to meet its debt-reduction plan by using asset sales, cash flow and securitization into tariff-deficit bonds, Galan said.
Iberdrola’s shares have lost 25 percent in the past year, including a 5 percent decline last week, making the Bilbao-based utility a cheaper target for any potential acquirers. Galan said he addresses this possibility every day with the government.
“We are concerned and we transmit to them our concern,” he said. “We are speaking the whole day, 24 hours a day, seven days a week with the government. They are creating a lot of noise which is affecting the regulatory stability and predictability.”
Even with the slide in shares, there are no obvious suitors for Iberdrola because most euro-zone utilities face “continuous political interference,” Galan said. “They are all in the same situation.”
The chairman pointed to draft legislation being debated by Spanish lawmakers that would impose a tax of 6 or 7 percent on power production. The U.K. also has had two years of debates on electricity-market reform, while utilities in France and Germany are suffering more than Iberdrola, he said, without singling out the government policies at fault.
Other asset sales at Iberdrola will include “non- strategic” natural-gas businesses such as its stake in Gas Natural Mexico, which it agreed to sell in September, and financial holdings it has in other companies, Galan said.
Iberdrola also has a stake in a U.K. nuclear venture with GDF Suez (GSZ) SA. While it isn’t trying to sell out of that project, “if there are good offers, we are a company with a very open mind,” he said.
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