Verbund exits French market by selling power plants to KKR-Reuters

(Reuters) – U.S. private equity firm KKR has agreed to buy two French power plants from Austria’s Verbund for around 150 million euros ($188 million), helping the utility draw a line under a foray into France that left it nursing losses.

Verbund started operations in France in 2009, seeking out better prices and a transition into renewable energy. It invested 650 million euros in the Pont-sur-Sambre and Toul gas-fired plants, but saw margins squeezed by high gas prices and low wholesale power prices.

Hydropower-focused Verbund considered mothballing both plants, and put them up for sale earlier this year. It said on Monday that it now expects to sign a sale agreement with KKR within days, and to close the deal before the end of the year.

“With this transaction, Verbund strengthens the core business, reinforces its position as a producer of renewable energy in Europe and concludes its involvement in the French electricity market,” Verbund said in a statement.

Like other European utilities, Verbund is struggling with electricity prices dampened by weak demand and overcapacity -exacerbated by generous German subsidies for wind and solar power.

These have made gas plants, in particular, uneconomical. Utilities across Europe have sought to divest or mothball underperforming gas-fired power plants.

KKR, though, follows a trail of opportunistic investors – largely trading houses and investment funds – who have sought to snap up the plants placed on the block, betting on regular earnings and rising power prices.

Harlan Cherniak, of KKR Credit’s Special Situations team, said the deal was part of a wider energy investment strategy.

“As many countries go through major changes in their energy provision, we believe that such assets will make a considerable contribution to energy security… especially as it relates to available capacity during peak times,” Cherniak said.

The Pont-sur-Sambre and Toul plants will be sold for close to their book value, which stood at a combined 150 million euros as of June.

“(Selling the plants) helps us to reduce (the) losses which we have in the thermal power business. This transaction means that our French losses are eliminated from 2015 onwards,” Chief Financial Officer Peter Kollmann told Reuters.

“The fact that we’re now selling the assets is the best outcome for Verbund.”

Verbund said the deal would have no impact on its earnings guidance. Kollmann confirmed Verbund expected net income for this year to reach 70 million euros, and expected to distribute a dividend of around 20 cents per share.

“Hydro in Austria has been above average and we think that our guidance is well supported,” Kollmann said.

Verbund in July slashed its 2014 earnings forecasts due to low water levels in its hydro dams, a difficult business environment and expenses for closing power plants.
In February, it had warned it would miss market expectations for its 2014 results as it expected a negative market environment for European utilities to continue.
Verbund shares rose 1.3 percent to 15.34 euros at 1400 GMT.