At least four parties are interested in a minority stake in German utility EWE, three people familiar with the matter said, adding that the asset’s value could be hit by falling network returns and growing retail competition.
First bids for the 26 percent stake are expected in May or early June, the people said after a deadline for initial expressions of interest expired last week. EWE hopes to conclude the sale, which is managed by Citi, in the second half of 2019.
Initial estimates valuing the stake at 1.5 billion to 1.6 billion euros ($1.7-1.8 billion) might be too optimistic, the sources said, with some putting a fair valuation at a more modest 1.2 billion to 1.4 billion euros, or even less.
“There are a few issues that are weighing on valuation,” the person said, adding that this included lower regulated returns for energy networks in Germany as well as growing competition for retail power customers.
Questions around governance – how much say an investor with a minority stake will have in strategy matters – are also putting potential bidders off, another person said.
While stable returns on regulated gas and power grids have been a magnet for infrastructure funds in recent years, they are expected to fall due to the unchanged low interest rate environment in Europe.
Retail markets, too, have become more challenging across the continent, including in Germany, where EWE has 3.2 million power and gas customers and faces growing competition from smaller players that are muscling in.
Interested parties include a consortium of Dutch pension fund PGGM and Deutsche Bank’s asset manager DWS, two of the people said. Oil major Shell is also part of the group, one source said.
Australia’s Macquarie and German insurer Allianz have formed a rival consortium, the people said. Australian infrastructure investor IFM and Canadian pension fund OMERS are separately looking at the asset, they added.
For some potential investors, EWE’s exposure to coal could be a problem as a number of funds are pulling out of investments in the fuel. EWE’s swb subsidiary still operates coal-fired power plants.
EWE and the potential bidders all declined to comment.
EWE has been looking for a new anchor shareholder since German rival EnBW agreed to pull out in 2015 as part of an asset swap that saw EWE sell its majority stake in gas firm VNG.
An initial public offering is seen as a possibility in the medium term, the people said.
If EWE fails to find an investor at the price it seeks, it could sell the stake to municipal shareholders, its largest shareholder group, one of the sources said, adding that for tax reasons they would take no more than 95 percent.
Source: Reuters.com