E.ON Bulgaria deal runs out of power as Czechs fail to find finance

By bne IntelliNews March 14, 2012

Tim Gosling and Nicholas Watson in Prague -

Three and a half months after German energy giant E.ON signed an agreement to sell its Bulgarian subsidiary to Czech company Energo-Pro for €133m, sources close to the companies tell bne that the deal is on the verge of collapse, with Energo-Pro struggling to secure financing.

As part of its ongoing drive to divest €15bn worth of assets, E.ON agreed on December 2, 2011 to sell its 100% subsidiary E.ON Bulgaria for €133m to Energo-Pro, which would allow the Czech energy firm to add the power distribution network operated by E.ON Bulgaria in the northeast to its handful of hydropower assets in the country.

According to Novinite, the Czechs staved off interest from Russia's state-owned MRSK Holding for the E.ON subsidiary, which holds a 67% stake in E.ON Bulgaria Grid and E.ON Bulgaria Sales, as well as 100% of E.ON Bulgaria Energy Services.

However, sources in Bulgaria tell bne that the deal is "collapsing", as Energo-Pro is struggling to attract the financing for the deal; more specifically, they say, the company has been unable to convince UniCredit Group to lend it the cash. The Italian bank is said to be worried that the Czech company is over-extended, and is also reported to be unhappy with the price of the deal.

Alexander Mamalev of Energo-Pro refused to confirm the deal was in trouble, saying only in an emailed statement: "The acquisition of E.ON by Energo-Pro is in progress. We will publish further information as soon as the transaction is completed. In the meantime, please do not be influenced by rumors and speculations. It is against company policy to comment on rumors."

E.ON spokesperson Rebecca Middleton was a little more forthcoming - though not much: "The sale of E.ON Bulgaria has not yet been closed due to the need for some further clarifications between E.ON and Energo-Pro. We are now, together with Energo-Pro, working towards the closing. We can affirm that we remain committed to the power supply in the region for the good of our customers in Bulgaria as long as we are the owner of the company."

Asked about the probable timing of the closure, she reiterated that "at this point in time, we are not prepared to comment in more detail."

Power positions

A collapse in the deal would extend the recent jockeying for position in the Bulgarian power sector, with the government waiting for things to settle down before privatising its remaining stakes in the country's distribution networks.

Austria's EVN pounced to boost its stake in its two Bulgarian units to 97% when the government floated its shares late last year, but the listing of the 33% state-owned stakes in the operators of the country's other two distribution networks - E.ON Bulgaria and CEZ Bulgaria (majority held by the Czech state-controlled giant) - have been delayed to April and May respectively, it was announced in February.

Part of a bid to spark life into the local stock market, and raise much-needed revenue for the state coffers, the E.ON Bulgaria listing was delayed whilst the sale to Energo-Pro went through, Emil Karanikolov, executive director of Bulgaria's privatisation agency told the parliamentary energy commission in February.

That delay now looks likely to be extended dramatically. Meanwhile, no reason has been offered for the delay in floating the CEZ stake, renewing speculation that the Czech giant is trying to cut its losses and exit Bulgaria. Meanwhile, EVN announced on March 5 that it plans to delist its units by June, which together with the delays appears to scupper the aim to boost local markets.

It also bodes ill for the plan to list a minority stake in the state-owned Bulgarian Energy Holding. The cabinet is reportedly mulling a flotation of 10-25% in the company - which groups state assets in generation, transmission and trading - and hopes to raise BGN1bn (€511m).

E.ON, meanwhile, will take an inconvenient hit to its divestment drive. The German utility paid €140.7m for the assets it combined into E.ON Bulgaria in 2004, but has been looking to sell for some time as part of a strategy to concentrate on larger, high-growth markets. It is also reported to be unhappy with interference from the Bulgarian government in the company's operations, and has seen profits at the unit tumble.

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