March 12, 2019 / 9:31 AM / a year ago

EDP to sell Iberian power assets, invest $13.5 bln by 2022

LONDON/LISBON, March 12 (Reuters) - Portuguese utility company EDP said it plans to sell 2 billion euros’ ($2.3 billion) worth of assets in Portugal and Spain, and raise 4 billion euros via an asset rotation programme until 2022 to fund its expansion in renewable energy.

EDP-Energias de Portugal is the largest Portuguese company by assets and is the target of a 9 billion euro takeover proposal by China Three Gorges (CTG).

In a strategic update on Tuesday it also said it has earmarked 12 billion euros in capital expenditure between 2019 and 2022, with growth focused on North America and Europe.

“We will generate over 6 billion euros of sale proceeds to reinvest in renewables and strengthen our balance sheet,” it said.

That should help it achieve a 7 percent compound annual growth rate in net profit over the period, and 5 percent annual growth in earnings before interest, taxes, depreciation and amortization (EBITDA), which should finish 2022 above 1 billion euros and 4 billion euros respectively.

In its home market and neighbouring Spain, EDP plans to downsize its thermal and merchant power business. EDP’s operations in Portugal account for 90 percent of electricity generation and distribution in the country.

Reuters reported exclusively last week that EDP was working on a plan to sell some of its assets in Portugal.

The utility has been running an asset rotation programme - selling some assets to buy others that may offer potentially higher returns - for a few years, mainly focused on wind power projects.

It expects to reduce its debt by 2 billion euros from end-2018’s 13.5 billion by 2022, when its net debt to EBITDA ratio should be less than 3 times, down from 4 times currently.

The sale of the Portuguese assets also reflects some of the demands by activist investor Elliott, which has launched a campaign to try to thwart CTG’s takeover proposal, but the “portfolio optimization” asset sale plan is somewhat below the 7.6 billion euros proposed by the shareholder.

As well as calling for the sale of Iberian thermal holdings and minority stakes in Spanish and Portuguese networks, Elliott had urged EDP to sell its Brazilian operation.

The 12 billion euros EDP has earmarked for investment, however, appears to go beyond that proposed by Elliott as the utility hopes to add 7 gigawatts of renewable power capacity globally, as well as some transmission projects in Brazil, where it plans to retain its overall exposure.

Nearly all of the investment will be in regulated assets and long-term power contracts to keep a low risk profile, EDP said.

In another nod to shareholders it promised to maintain an “attractive dividend policy” with a minimum 0.19 euros per share to be distributed, while raising the payout ratio to 75-85 percent by 2022 from 65-75 percent now. ($1 = 0.8902 euros) (Writing by Andrei Khalip; Editing by Susan Fenton)

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