January 2, 2013 3:23 pm

Iberdrola - powering down

Sell-off of Spanish energy utility is overdone

From Yankee go home to españoles go home. Summary Latin American nationalisations only exacerbate Spain’s persecution complex. And still they come: days before the end of 2012, Madrid-based energy group Iberdrola had its Bolivian assets seized. True, it was only a matter of time before President Evo Morales came calling. He has nationalised a host of oil, telecoms, mining and electricity generation companies since coming to power six years ago. Last May Bolivia expropriated fellow Spanish energy group Red Electrica’s assets. Iberdrola will not give up without a struggle – and nor should it. But Bolivia has tended to pay up, so investors should not lose sleep over the fandango.

If anything, the forced exit merely hastens the €2bn divestment plan already in train as Iberdrola seeks to reduce its debt pile. In October it announced plans to cut net debt from €32bn, a worrisome four times earnings before interest, tax, depreciation and amortisation, to €26bn by next year, without cash call. True, Bolivia will not make much impact on that, accounting for roughly 0.2 per cent of net profit with a book value of about €75m. But Iberdrola was already exiting non-core investments in Latin America to focus on Brazil and Mexico, its biggest economies. And it is hard, given the political backdrop in Bolivia, to see how it could obtain a full price from a private buyer.

But fear not. Iberdrola’s end-of-year sale of French wind farms to General Electric, Munich Re asset manager Meag and EDF for an initial €350m brings the proceeds of asset sales to €850m. Combined with planned restraint on capital expenditure, that makes its €2bn divestment plan more plausible. Add €3bn owed by Madrid to compensate for the tariff deficit from selling power to retail users at less than the production cost, and the 2013 outlook is rosy – even if it is mostly priced in.

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