Finerge sale key to Enel new markets push

We are now officially in post-summer deal season.

This week, Enel Green Power has signalled it is exiting Portugal with the disposal of its Portuguese subsidiary Finerge for €900m to a wind-focused division of the global asset manager First State. The deal is due to close by the end of this year, at which time First State is set to own Finerge and its wind portfolio totalling 642MW.

The exact composition of Finerge’s portfolio is somewhat complex, and there are aspects to be ironed out before the deal can close. For example, Finerge owns a 36% stake in the Eolicas de Portugal (ENEOP) consortium, which owns wind farms totalling 1.3GW.

ENEOP is in the process of separating its assets into a series of special purpose vehicles, and the Finerge disposal relies on that process going smoothly. However, if it does — as we expect it will — then Finerge would own four special purpose vehicles with total wind capacity of 445MW. When you combine this with Finerge’s other interests, its total assets are 642MW in wind farms of 863MW.

The reason Enel is selling Finerge is a lot more straightforward.

Enel Green Power has set out a five-year plan targeting fast-growth in emerging markets. In May it announced that by 2019 it would invest €9bn adding 7.1GW of new capacity in markets including Brazil, Chile and Mexico, as well as Africa and parts of Asia. This transaction is crucial if Enel Green Power is to realise this strategy.

This week, for example, it has signalled its intention to step up its activities in Morocco in North Africa. It is bidding in an 850MW wind tender run by national utility ONEE, where the results are expected next month. If it wins then growth in North Africa could be fast.

And last week it entered India by buying a majority stake in Indian developer BLP Energy.

By contrast, Portugal is anything but a fast-growth market. The country is now just 400MW short of its 2020 target of 5.3GW installed wind capacity, which means that on average it is only going to add 100MW a year over the next four years. There is stable support for wind, which means it is fine for an investor like First State that wants to own reliable assets.

However, the Portuguese government has given no indication that it is going to raise its wind target. Therefore, for a growth-focused firm like Enel Green Power, it is far better to take the cash out of this established market and re-invest. If it is going to deliver on its plan to invest €9bn over the next five years then it needs to raise capital, and the €900m here makes a dent in that target.

Our only question now is whether the company is going to spread itself too thin. There is no harm in being ambitious, but it is not easy to crack Africa, Asia, North America or South America separately. Clearly, the challenge is magnified if trying to do them all at once, and it is a challenge Enel will grapple with over the next five years.

The company has made raising €900m look easy, but investing it wisely will be less straightforward.