FRANKFURT - German utility RWE AG's crucial debt-reduction plan has suffered a setback as the company shelved plans to sell gas and oil fields in Egypt due to a lack of interest from potential buyers amid the turmoil of the Arab Spring, said several people familiar with the matter this week.
The decision to suspend the sale played a part in last month's downgrade of RWE's credit rating, to the brink of junk status, by Standard & Poor's, said one of the people. S&P declined to comment on the matter.
Political turmoil in Egypt and the wider region resulted in extremely muted interest for the assets, prompting RWE to abandon the sale for now, two people familiar with the matter told Dow Jones Newswires. Austria's oil and gas company, OMV, was the last potential suitor to look at the assets, but walked away in light of the political situation, they said.
RWE and OMV declined to comment.
RWE had planned to sell the two undeveloped Egyptian oil and gas fields as part of a broader effort to cut debt and repair its balance sheet after Germany's decision last year to accelerate a planned exit from nuclear power generation hurt the company's profitability. RWE has said it intends to sell assets worth 7 billion euros through 2013.
To date, however, the company has only realized about EUR1.5 billion of the total sales target, with analysts increasingly expressing their frustration of the lack of progress.
RWE holds 40% in the North Alexandria field and 20% in West Mediterranean Deep Water field in Egypt. The rest is held by BP PLC (BP). The people familiar with the matter previously said that the utility was looking for a price of up to about $1 billion for its stakes in the two exploration licenses.
By selling the Egyptian fields, RWE could have also saved about $3 billion in investment required to bring them to production, a saving that would have largely met its goal for reducing in capital expenditure. At the same time, the sale of the two fields would not dilute earnings, because the assets are not producing anything yet.
Other assets RWE is trying to sell to raise cash include its Czech gas transmission unit, NET4GAS, as well as several regional energy suppliers in Germany.
RWE has repeatedly pledged to do everything in its power to retain a single-A credit rating, which is generally considered crucial for utilities' energy-trading operations because counter parties often insist on such ratings to minimize transaction risks.
Standard & Poor's, among other things, cited limited progress in RWE's asset disposal program as a reason for its downgrade.
The company presently has around EUR15.7 billion in bonds outstanding, with some EUR4.3 billion due to mature through 2014, according to information on its website.
Other measures aimed at repairing the balance sheet--a capital increase and the issuance of EUR2 billion in hybrid bonds--have already been concluded.
Additionally, RWE has pledged to cut costs, partially by cutting jobs, and reduce investment.
Another person familiar with RWE's thinking Friday said that the company plans to cut up to 8,900 jobs over the next few years, slightly more than previously expected.
Some 3,000 jobs are expected to be lost through asset disposals, the person said, and an additional 5,900 jobs as part of RWE's restructuring efforts. Originally, RWE had expected its restructuring drive to reduce its workforce by around 5,000.
RWE also intends to set up a new pan-European unit to manage the company's fleet of fossil-fueled power plants, in an effort to make its operations more efficient in a converging European electricity market, the person said. The unit is expected to become a European stock corporation, known as Societas Europaea, or SE, and begin operations in January.
Copyright (c) 2012 Dow Jones & Company, Inc.
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