Eni in Talks With KKR to Sell Stake in Biofuels Unit for Up to $3.4 Billion — Update

By Christian Moess Laursen

Eni said it is in talks with private-equity group KKR for the potential sale of a minority stake in the Italian energy company's subsidiary Enilive for up to 3.125 billion euros ($3.4 billion), amid a struggling biofuels market in Europe.

The interest from New York-based KKR in Eni's biorefining unit comes at a time when investors and companies are rethinking their bets on biofuels, with prices cooling and competition intensifying. Over the long term, however, analysts expect biofuels demand to pick up, partly helped by regulatory requirements.

Last month, British energy majors Shell and BP both delayed investments in biofuels as the European market weakened has significantly since the second half of last year, in part due to China increasing supply to the continent as well as the falling price of renewable fuel credits in the U.S. Shares in biofuels market leader Neste have shed nearly half their value this year, with the Finnish company in May cutting its renewable-fuel margin forecast.

Eni said Tuesday that it signed an exclusive pact with KKR for the potential sale of a stake of between 20% and 25% in Enilive, based on a valuation for the unit as a whole of between EUR11.5 billion and EUR12.5 billion.

A final transaction is subject to a definitive deal. However, both parties are committed to negotiating the terms of a deal, Eni said.

The company said it could sell a further stake of up to 10% of Enilive in light of strong interest shown by institutional financial investors.

The valuation range of the unit exceeds several market analysts' expectations. RBC Capital Markets analyst Biraj Borkhataria said in a note that the price tag is likely to surprise investors positively, particularly as the market sentiment toward biofuels has been negative recently.

While conditions in the biofuel markets have become challenging in some markets, biofuels could have opportunities as a replacement for fossil fuels in segments where electrification is developing or not currently practical, UBS analysts said in a note.

Demand for renewable diesel and sustainable aviation fuel is expected to outstrip supply in most of the second part of this decade, according to UBS estimates.

The stake sale would be part of Eni's satellite-model strategy, with which it aims to develop units linked to the energy transition that can access capital markets and finance their own growth, in part through third-party funding.

An example of this strategy was the sale of a 9% stake in its low-carbon unit Plenitude for EUR700 million in December to investor Energy Infrastructure Partners, a step toward a potential initial public offering.

The company said in May that it had received several preliminary expressions of interest for a minority stake in Enilive.

Eni is likely to use proceeds from the sale to improve its balance sheet, but investors could start to consider the potential for higher returns from 2025 given several asset sales processes under way, RBC's Borkhataria said.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

July 23, 2024 07:53 ET (11:53 GMT)

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