Enel, Italy's dominant utility, has signed a preliminary agreement to sell a large electricity distribution network in northern Italy to ASM Brescia for 166.5 million Euros. The sale is subject to approval by the Italian industry ministry and the country's anti-trust authorities. The transaction has been part of Italy's liberalisation programme which involves Enel's selling its distribution networks in urban centres.
Enel is meanwhile making preparations for a possible initial public offering of 50% of its Terna unit, which owns Italy's high voltage grid.
However, investors and bankers were disappointed at the results of the sale of a r2.2 billion block of shares in Enel during October 2003. The bankers were disappointed because the sale involved their taking no fee, with potential profit coming solely from proprietary trading of the shares. The banks have argued that although the Italian government got a good deal from this transaction, it will suffer in the long run. It still owns 61% of Enel, and what it gained in the block trade, it lost on its remaining stake, which has slipped in value.
Viswas Raghavan, a markets expert at JP Morgan, was reported by the Financial Times as saying that an alternative for the government would have been a 'backstop deal', in which an undisclosed minimum price for the shares is agreed with a bank, which then sells the block. Investors see a marketed deal, but not the backstop price. The government shares in any profit made and the bank is paid a fee.
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