March 7, 2021

Foreign funds will bring the CNMC cut to the energy sector to an international arbitration


The drastic cut in the remuneration for transport and distribution (both electricity and gas) and the regasification proposed by the CNMC (National Commission for Markets and Competition), which will mean a reduction in the revenues of the main companies of the sector of more than one billion euros per year between 2020 and 2026, is having a strong impact in companies such as Enagás, Red Eléctrica, Naturgy, Iberdrola and Endesa, which have suffered falls in the stock market between 4.57% and almost 17% in the last four sessions.

Thus, its main shareholders, most of them important foreign funds, have put the cry in the sky and, in the case of Enagás, they are studying the possibility of taking these cuts, if they are confirmed at the end of the year after the consultation period, before international arbitration tribunals. One of them is the American company BlackRock, the first fund manager in the world, which owns 3.2% of Enagás and another 3.04% of REE.

It should be noted that the 29% of the capital of Enagás is in the United Kingdom, 27% in Spain (5% the State through the SEPI), 19% in the USA. and Canada, 18% in continental Europe, 3% in China and 2% in Abu Dhabi.

In addition, BBVA analysts complain that "the rules of the game are changed and disturbing changes are introduced for the sector". In the Mirabaud banking and financial group they point out that "the uncertainty will continue for the gas companies, which will have to improve the current proposals during 2019 and 2020 to arrive at a final methodology. The intentions of the first regulator are quite clear and negative for companies like Enagás and Naturgy. "

On Naturgy, Mirabaud indicates that assuming that it has a 70% market share in gas distribution, the negative impact would be about 315 million euros in 2026 (170 million on average in the period 2021-2026). "Even though we will have a period of uncertainty until a final regulation is approved, it is clear that the impact is negative, but it is too early to evaluate it ».

On the other hand, the solvency rating agency S & P Global Ratings warned yesterday that the adjustment proposed by the CNMC "could be detrimental" to the credit quality of the gas sector and cause "a significant dent" in the income of these companies.

In a report, he acknowledges that the proposal of the body led by José María Marín "is deeper than expected, possibly eroding the rating margin in the Spanish gas distribution and transportation companies."

The Enagás dividend is in danger

The investment banks Citigroup and Goldman Sachs also see risks for the Enagás dividend after the cuts proposed by the CNMC. Citigroup has indicated in a report that the proposal to reduce the remuneration to the gas and electricity networks in Spain endangers the Enagás strategy. «The worst proposal of the CNMC expected It will significantly accelerate the fall in the profits of Enagás' Spanish assets and will significantly reduce the group's cash flow. " He adds that in the new regulatory framework for the 2021-2026 period, Enagás will no longer have the resources to pay a generous dividend and deploy capital to maintain its profits.

The Enagás dividend charged to 2018 was of 0.918 euros and foresees for the period 2021-2023 an increase of a minimum of 1% per year, compared to the committed growth of 5% until 2020, which will raise the compensation at € 1.68 gross per share.

Citigroup says that, without the benefit support, the dividend will be unsustainable, he expects that "Enagás cut the dividend per share considerably ». The investment bank believes that a dividend of one euro per share would be sustainable.

Goldman Sachs has pointed out that the reduction of the remuneration implies a considerable risk for the Enagás dividend as of 2023. It explains that the income cut would be on average around 240 million euros in the period 2021-2026, although it would have a progressive, about 100 million in 2021 to reach about 325 million in 2026. For Enagás, it implies a risk of 15% in profit per share in 2021 and almost 50% in 2026.

Reasonable profitability

For his part, Luis Garvía, professor of finance at Icade Business School, explains to ABC that the CNMC circulars do not directly affect the market or consumers, but rather infrastructure, "although in the end, something will touch them". Garvía explains that the electricity and gas markets are very different. "This is more mature, although it is oversized and has excess capacity." He adds that "a reasonable return of approximately 5%, in a market without competition, is very good". This energy expert says that "the electricity market is more complex, although its technology is cheaper. A cut in the remuneration to this sector could affect the plans that exist to extend the electric car ».

You have to remember that the circulars of the CNMC they reduce by 7% the remuneration to the electrical distribution for the companies of the sector, happening of 5.455 million current ones to about 5.073 (381 million less annual). On the other hand, in the electricity transport carried out by REE (Red Eléctrica), the cut is 8.2%, of 136 million. Thus, the remuneration will go from 1,656 current million to 1,520 million.

In gas, the distribution cut for companies such as Naturgy, Redexis, Madrileña Red de Gas, Nortegas and Gas Extremadura is 17.8%, about 253 million. In his case, the remuneration goes from 1,420 million annually to about 1,167 million.

It is also necessary to add 259 million cuts in the payment for gas transportation and regasification, 21.8%, to Enagás.

(tagsToTranslate) funds (t) foreigners (t) will carry (t) cnmc (t) arbitrage

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