Spain Natural Gas Making Some Money

By Esteban Duarte and Joao Lima

Dec. 19 (Bloomberg) -- Gas Natural SDG SA, Spain’s biggest natural gas company, agreed to sell distribution assets in Madrid for 800 million euros ($1.2 billion) to Morgan Stanley and Galp Energia SGPS.

Morgan Stanley and Portugal’s Galp purchased facilities that provide natural gas and electricity to 38 towns in the region around the Spanish capital, Gas Natural said today in a regulatory filing. The Barcelona-based utility will make a gross capital gain of about 380 million euros with the deal.

Gas Natural this year completed the purchase of utility Union Fenosa SA to add power plants and clients as it faces greater competition in the domestic gas market. The company is now selling assets to meet competition guidelines and cut debt following that acquisition.

Chief Executive Officer Rafael Villaseca said Nov. 4 that Gas Natural planned to complete the sale of the natural-gas distribution assets through an auction this year. Gas Natural had received offers from “six or seven interested companies,” Villaseca said that day.

In July, Gas Natural agreed to sell other natural gas distribution units to Naturgas, a division of Portuguese utility Energias de Portugal SA.

Debt Target

With the sale of its stake in Empresa de Energia del Pacifico SA of Colombia in October, Gas Natural reached 2.3 billion euros in asset sales, and today’s transaction takes that total above 3 billion euros. Net debt increased to 21.9 billion euros at the end of September following the Fenosa purchase and Gas Natural plans to cut it to about 18 billion euros at the end of this year.

The latest transaction is pending approval from competition authorities and will be completed in the first half of 2010, the filing said.

Other assets that Gas Natural plans to sell are gas-fired plants with a combined capacity of 2,000 megawatts. Gas Natural is holding talks on the planned sale of the plants, Antonio Basolas, Gas Natural’s director of strategy, said Nov. 4. These units won’t be sold through an auction and the company is considering selling the plants for cash or exchanging them for other assets, Basolas said on that day.

Gas Natural shares have dropped 12 percent this year, underperforming the 3 percent decline on the Dow Jones Stoxx 600 Utilities Index for Europe over the same period and cutting the company’s market value to 13 billion euros.

The Fenosa purchase is helping to raise profit at Gas Natural. Earnings before interest, tax, depreciation and amortization will advance to more than 6 billion euros in 2012 from 2.56 billion euros in 2008, Gas Natural said June 26. The company will invest 8 billion to 9 billion euros in the period.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net; Esteban Duarte in Madrid at eduarterubia@bloomberg.net
Last Updated: December 19, 2009 15:35 EST