Enel CEO on Chilquinta bid, Latin America, Chinese buyers and innovation

22 October 2019

Enel continues to prioritize investment into regulated distribution networks and renewable assets worldwide, CEO Francesco Starace told this news service.
 
On the sidelines of the Italy-USA Innovation Forum at Stanford University on Friday, where Starace spoke at the event designed to foster cooperation between Italy and the US in technology development, the CEO said it looks for opportunities in all of the 34 countries in which it operates.
 
In the area of regulated distribution, Starace confirmed reports that Enel bid for the Chilean and Peruvian assets of Sempra Energy [NYSE:SRE].
 
“We bid and then we did not win,” Starace said.
 
Sempra’s Chilquinta, the third-largest distributor of electricity in Chile, was ultimately sold to China’s State Grid Corporation for USD 2.23bn in cash, in a deal announced on 14 October. Sempra also sold in September its Peruvian business, Luz del Sur, to another Chinese bidder: Yangtze Power.
 
Asked if Chinese bidders, many of which have faced regulatory pushback in the US, had been seen as active bidders in markets like Latin America, Starace said: “They are a player in some markets maybe more than others.” He added that it is natural for buyers to be more active in countries where they do not anticipate regulatory hurdles. In this case, those markets included Chile and Peru, he said.
 
According to Mergermarket data, Chinese acquisitions of American companies plunged 95% in 2018, compared to 2016.
 
Enel also remains upbeat on Brazil, where the Italy-based producer and supplier of electricity and natural gas has successfully made acquisitions in the past.
 
“The economy in Brazil is going better, so if you look at it from that standpoint, we are encouraged,” Starace said.
 
Asked about the impact of the new Brazilian president, Jair Bolsonaro, Starace said the president and the team he assembled has been “pretty good at delivering on the reform program.” First with the reform of welfare and pensions, and now fiscal reform, he said.
 
According to reports, Brazil’s Senate is set to hold its final pension reform vote on 22 October.
 
Enel acquired Eletropaulo Metropolitana Eletricidade de Sao Paulo in 2018 for GBP 2.5bn (USD 2.32bn), and CELG Distribuicao for GBP 512m (USD 639m) in late 2016, per Mergermarket data.
 
“We believe metropolitan areas is where most of the action is going to take place,” he said, speaking generally about likely areas of investment.
 
This month Starace told Folha de Sao Paulo that Enel plans to analyze acquisition opportunities in Brazil in 2020. Three potential target names cited in that report included Cemig [BVMF:CMIG4], Light [BVMF:LIGT3 ] and CEB.
 
Yet Starace told this news service, “These are networks that have been discussed for so long.” He added that at this point, there is “no signal that they will become opportunities, but might be.”
 
“In the case of networks, you can only buy networks when they are sold,” Starace said.
Its attempt to acquire Chilquinta was in line with its larger strategy, as the Chilean company was a regulated distribution network. “We have been looking for these assets,” Starace said.
 
Enel, which has a market cap of EUR 68.8bn, said in November 2018 that it would invest EUR 11.6bn over three years on growth in renewables, and focus on infrastructure such as grids, e-mobility and innovative customer service. Its next strategic plan will be announced in the coming weeks.
 
In the US, Starace noted that Enel has so far invested in organic growth in renewable energy by developing, building and operating plants, and that has been a success so far.
 
In his comments at the Italy-USA Innovation Forum, Starace spoke of how Enel had opened innovation hubs in places like Tel Aviv and the San Francisco Bay Area so entrepreneurs can help it solve industry-wide challenges.
 
For example, it has partnered with startups such as San Francisco-based Nozomi Networks, a cybersecurity provider for industrial control systems, to improve reliability, efficiency and cybersecurity at Enel’s power generation plants and networks.
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