FOCUS-Wanted! Investors demand Italy hire renewable expert, global networker to run Enel

Investors want international focus maintained

Enel has bet big on renewables but debt in focus

By Francesca Landini, Giuseppe Fonte and Angelo Amante

MILAN/ROME, April 5 (Reuters) - Expertise in renewables and an international focus are what investors want to see from a new head of state-controlled Enel, as Italy's government screens candidates to replace the energy group's long-serving chief executive.

Prime Minister Giorgia Meloni's administration is determined to oust current CEO Francesco Starace, several sources told Reuters. In charge since 2014, Starace is in the crosshairs of Meloni's inner circle as he is deemed too independent.

Meloni's office is also concerned about the group's debt pile. But sources familiar with the matter said that head hunters hired by the Treasury are finding it tricky to put forward potential successors with the broad range of skills required to run one of Europe's largest utilities.

Leading candidates to run Enel include Stefano Donnarumma, CEO of Italian power grid operator Terna, and Luigi Ferraris, who worked for Enel for 16 years including as CFO before becoming chief executive at Italian railways operator Ferrovie dello Stato, the sources said.

Flavio Cattaneo, vice president of high-speed train operator Italo, and senior managers at Enel's units such as Francesco Venturini are also being considered, the sources said. Venturini runs Enel X, the group's division specialising in technology and energy transition.

Enel declined to comment. Donnarumma, Ferraris and Venturini were not immediately available for comment, while a spokesperson for Cattaneo said the executive was not interested in the job.

A decision is expected in mid-April. In the meantime several shareholders have signalled to Rome that they don't want an abrupt change in Enel's strategy, in particular a drastic reduction in the group's international exposure. Some investors fear the government under nationalist Meloni may want the company to be more domestically focused.

"I would recommend (the new CEO) not to try to shake up everything," said Jean-Hugues de Lamaze, managing director at alternative energy investment firm Ecofin, which has $2.2 billion of assets under management and has held a small stake in Enel for the last six years.

"Starace announced a major programme to restructure the group to go back to a growth path... I would like to see it confirmed," he added.

With almost 60 Gigawatt (GW) of installed capacity, Enel is one of the world's biggest players in renewable energy.

Starace won plaudits for his commitment to green energy. However, investors and the government grew restless over a debt pile that had grown to around 60 billion euros ($65.40 billion) in 2022 from 45.5 billion in 2020, when Starace was reappointed for a third term.

The company, which has been hit by soaring gas prices and government measures capping bills to shield consumers, saw net profit slip to 5.4 billion euros last year, from 5.6 billion euros in 2021.

In November Enel unveiled its updated strategy to 2025, pledging to cut net debt by 21 billion euros via asset disposals, while at the same time investing 37 billion euros and increasing installed renewable capacity by 21 GW.

It plans to focus on six core markets - Italy, Spain, the United States, Brazil, Chile and Colombia.

The new CEO should not sacrifice the group's exposure to North America and confirm its dividend policy, a number of investors said.

"People in Italy may prefer that Enel focuses on making things as much as possible in its home country and not investing so much abroad, but the company has no choice... if it wants to attract foreign investors," said Vincent McEntegart, multi-asset investment manager at Aegon Asset Management, an Enel shareholder with assets under management worth $311 billion.

For Enel, U.S. President Joe Biden's green energy subsidy package could mean double digit returns in North America compared with single digit in Europe, McEntegart said, adding such returns would underpin the group's attractive dividend policy.

Ecofin's de Lamaze agreed Enel should not retreat from global markets.

"The future for European utilities is international development in advanced markets. You can't have an Italian only Enel, it would be such a step back," de Lamaze said.

Since Starace was appointed CEO in May 2014, Enel has increased its installed renewable energy capacity to 59 GW from 36 GW at the end of 2013.

Starace's mantra has been electrification of consumption and digitalisation of grids and he said last year he wanted to leverage a renewed focus on energy security around the world to accelerate the group's exit from natural gas. The group currently plans to become carbon free in 2040.

"My priorities for the new CEO would be to continue to roll out renewables and accelerate the exit from gas," Simone Siliani, the director for Italy's Fondazione Finanza Etica, told Reuters.

Finanza Etica, which is an active investor on ESG issues, has been holding a tiny stake in Enel since 2008.

"Enel can make the difference if Italy wants to meet its decarbonisation goals," added Siliani.