In its concerted effort to reduce debt and maintain investment grade credit rating, Iberdrola SA, the biggest utility firm in Spain, has decided to divest its French wind parks to a consortium of companies led by General Electric Company (GE - Analyst Report) for about €400 million ($529 million). The divested portfolio includes 32 wind parks with total installed capacity of 321.4 megawatts that are directly or indirectly controlled by Iberdrola Renovables France, the French subsidiary of the Spanish utility company.
The strategic move is aimed at reducing its huge debt burden, which has been consistently on the rise as the Spanish government failed to pay the bills for selling power at regulated prices due to the continued sovereign debt crisis. To add to its woes, Iberdrola presently has a dismal credit rating by S&P at just a notch above the ‘junk’ rating. With the asset sale likely to bring in additional liquidity, the company hopes to remain afloat at least for the time being, although some experts anticipate an imminent dividend cut.
As part of its cost-cutting initiatives, Iberdrola intends to retrench its workforce and divest some of its operations to reduce debt by about €6 billion to €26 billion within the next two years. With the latest transaction, the company has divested about €850 million worth of assets in 2012.
Post-acquisition, General Electric will have a 40% ownership stake of the divested unit, while MEAG, the asset manager of German insurer Munich Re, will hold another 40%. The remaining 20% ownership stake would be grabbed by EDF Energies Nouvelles, the renewable unit of the EDF Group, the leading electricity producing company in France.
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General Electric currently has a Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock. We also have a Neutral recommendation and a Zacks #3 Rank for 3M Company (MMM - Analyst Report), one of the peers of General Electric.