Fene wants to untie the Gordian knot of Naturgy | Business

Experts say background noise is one of the most difficult things to measure. Even if it’s big and annoying. At Naturgy, Spain’s main gas company and the country’s third-largest electricity company, the tumult of recent years has ended with a bang. Its main shareholder CriteriaCaixa (26.7%) is in negotiations with the National Energy Company of Abu Dhabi (Taqa) to join the company. Emirates is holding discussions with Naturgy shareholders CriteriaCaixa and the CVC (20.7%) and GIP (20.6%) funds, as confirmed by the National Securities Market Commission (CNMV). If the negotiations are successful, Taqa should announce the takeover of the entire capital of Naturgy, a strategic company for Spain, which the government closely controls and in which CriteriaCaixa, holding company The company, led by Isidro Faine, decided to rearrange the pieces on the board.

Naturgy has four major shareholders: one with an industrial vocation – CriteriaCaixa (26.7%) – and three large funds – CVC (20.7%), GIP (20.6%) and IFM (15%). Everyone has their own interests, their own strategy and their own calendar. Two large companies, CVC and GIP, have been looking for an exit for some time; Another major company, IFM, which carried out a takeover three years ago, wants to gain more control, double its weight on the board – from one to two seats – and limit the room for maneuver of chief executive Francisco Reines, appointed in 2018. A mess that makes it difficult to manage and forced Criteria Caixa, holding company investees of the La Caixa group, acting as a big brother.

The move is further evidence that Reines has the full support of its largest shareholder, who has issued explicit statements of support when necessary – as he has recently – in an unusual move. This was in July 2023 and April of this year. And all this in order to solve the problem of corporate governance, around which noise is accumulating. No element is missing. US financial giant BlackRock, which owns stakes in Repsol, Enagás, Redeia, Santander, BBVA, Sabadell and ACS, bought GIP for $11.4 billion in a transaction that will close at the end of the year and whose implications for Naturgy, according to sources, are familiar the situation remains to be determined.

A fragile pact on the balance of power between shareholders, reached two years ago, is in question. Australia’s IFM entered the company through a fitful government-driven partial takeover that did not cover all targets. It remained at 10.8% of capital and caused a head-on collision with Criteria Caixa. The company increased its participation to make it more difficult for IFM to buy shares. Regardless, Naturgy restructured its board of directors in early 2022, introducing IFM with a director and giving Criteria additional space for three representatives. CVC and GIP each have two directors, and there are also three independent directors and one executive director (group president Francisco Reines).

Strategic company

The government’s antennae were deployed and focused on “Naturgy” for some time. Naturgy is a strategic company for the country. It supplies a third of the natural gas consumed in Spain, controls 49% of the gas pipeline (Medgaz) with Algeria (shareholder with 4.1% through Sonatrach) and is under constant scrutiny. The government knows—as do managers and shareholders—that, from a corporate governance perspective, the business problem is not yet solved. The executive is suspicious of the funds and opposes business management’s basic formula for extracting maximum value from a company: split it up and sell it off piecemeal. In Naturgy, the separation plan publicly questioned by Vice President Teresa Ribera is called the “Twin Plan.” He was approved by the council and management more than two years ago, but his work has been paralyzed. Due to the market situation and government opposition. Geminis was considering splitting the group into two companies: one with regulated gas and electricity assets (grid infrastructure) in Spain and the rest of the countries where the company is present, and the other with a liberalized business (generation, both conventional and conventional). renewable energy, and energy marketing and services). The company’s position is pragmatic: Gemini is a project that makes complete strategic sense, but the conditions for its implementation have not been created.

With markets under stress due to the international situation and volatile energy prices, analysts are wondering whether Naturgy’s managers, led by Reines, will be able to deliver on their planned plans focused on the energy transition and renewables, or have they erred? optimism. Bankinter’s analysis, signed by Arantsatsu Bueno, focuses on precisely this. Bueno notes a “less favorable environment for gas and electricity prices than assumed in the Plan,” leading to “more conservative estimates.” The analysis indicates that the gas price is 23 euros/MW against 55 euros and 47 euros in Naturgy’s plan for 2024 and 2025, respectively. Natural gas consumption in Spain is also not doing very well. It fell 11% in 2023, when it reached 323,753 gigawatt-hours (GWh), according to the Strategic Petroleum Reserve Corporation (Cores).

Of course, there are doubts on the stock market. With its best-ever results in 2023 – 1.986 million in net income, up 20% from the previous year – Naturgy lost 25% for the year – before the Taqa conversations were published – and 17% over the last five exercises. The company also acknowledges that the company’s price declined in the early months of the year due to its exclusion from MSCI indexes. This is a serious moment. The MSCI Indices are prepared by MSCI (formerly Morgan Stanley Capital International) and consist of a number of benchmarks that together reflect the evolution of the world’s most important markets. IFM’s takeover bid and shareholder structure left working capital, the traded capital on the market, at just 13%, causing MSCI indices to fall. Many investors whose trades are indexed to these indices have sold.

Despite the noise, the company and its managers use numbers as insulation. In 2023, Naturgy recorded the best year in its history, despite lower energy prices and high market volatility, with a significant increase in gross operating result (EBITDA), which reached 5.475 million euros (+11%). This is all based on improved profitability of electricity and gas, renegotiation of network tariffs in Latin America and new renewable energy capacity. Naturgy, the company clarifies, remains committed to renewable energy sources: by the end of 2023, 6.5 GW (+18%) will be commissioned. “Looking ahead to 2024 and 2025,” says Renta 4 analyst Angel Perez, “they expect 1.2 GW and 2.3 GW of additional capacity to come online, respectively.” Overall these are good numbers that allowed the company, among other things.” to receive investments – 3,000 million – and dividends – 1,634 million – without breaking a sweat.

But companies don’t live in the past. And this year will not be easy. Naturgy is not currently quantifying its 2024 targets due to extreme volatility in energy markets as well as unexpected weather. Bueno’s analysis (Bankinter) shows that the consensus in analyzes suggests a possible fall in gross EBITDA of up to 11%, bringing it to 4.888 million. In any case, the CriteriaCaixa movement leaves irrelevant, obsolete, some of the internal pressures used by the funds, such as the election of a CEO who will “accompany” Reines – this is not on the agenda at the moment, they say. Sources consulted or CEO salary revision – 5.86 million in 2022 and 5.47 million in 2023. At a meeting held in April, the salaries of the company’s directors were approved, with 76% voting in favor. To be continued.

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