* Might also sell assets to help capex, balance sheet
* To offer base dividend plus top-up from non-core ops (Adds management, analyst comments, shares)
By Stephen Jewkes
MILAN, March 20 (Reuters) - Italian power grid company Terna plans to nearly double investments in non-regulated businesses such as battery storage in a bid to boost returns and profitability.
It aims to invest 6 billion euros by 2016 with nearly a third earmarked for non-core operations, where it said returns could be higher than in its traditional grid business.
Europe’s biggest independent power grid operator might also sell assets, including parts of the grid infrastructure, to fund investments and strengthen the balance sheet.
“The sales could be on a leaseback basis where the investor gets the cash flows but Terna keeps operational management,” Terna CEO Flavio Cattaneo said in a press conference.
A couple of asset portfolios have already been identified that might appeal to investors like pension funds, the company said.
“I don’t understand why a company says it will invest 6 billion euros and at the same time announces asset sales. I think they’re concerned about the balance sheet and the move was done for the rating agencies,” a Milan-based analyst said.
Terna, which has debt of around 5 billion euros, has benefited from increased political stability under the Italian government of Mario Mont as well as new tariff regulations.
Standard and Poor’ s recently confirmed its ‘A-’ rating on the company, higher than the Italian government’s ‘BB+’ rating.
In its new 2012-2016 business plan Terna said it will invest 4.1 billion euros to develop the Italian power grid, compared with 5 billion euros in its previous plan.
Italian power prices are among the highest in Europe in part because of areas of congestion along the national grid.
“I thought they were a bit conservative on the capex and I was expecting more on the battery spending front,” said Enrich Bartok of Fidelity’s Equities.
Terna, like other Italian energy companies, was hit by an energy tax introduced last year as part of government austerity measures. Analysts have said the tax is not expected to apply to the group’s non-core unregulated businesses.
CEO Cattaneo said the focus on non-traditional and non-regulated business had helped offset negative economic trends and the energy tax - “a strategy that will grow in the coming years,” he said.
Terna, which expects core earnings over the period to grow by an average of 7.5 percent per year, said it would continue with plans to link the power market of Italy with those of Montenegro and North Africa.
But Cattaneo said the company was not talking to any operators in Europe with an idea of joining forces to develop Europe’s power networks.
“We are not looking for a partner,” he said.
In January Snam and Belgian gas group Fluxys SA signed an agreement to assess joint initiatives to develop gas infrastructure projects in Europe.
Terna, which will pay a dividend on 2011 results of 0.23 euros per share, said it would offer a base annual dividend, as of 2012, of 0.19 euros per share.
That would be topped up with a payout of 60 percent from the results or capital gains of its non-traditional business.
In its previous plan Terna said it expected its dividend to grow 4 percent per year to 2015.
At 1417 GMT Terna shares were up 1.6 percent while the European utilities index was 0.38 percent lower. ($1 = 0.7552 euros) (Editing by David Cowell)