Exclusive-EDF considers preferred equity to lure buyers to Edison stake, sources say 

By Elvira Pollina, Forrest Crellin and Francesca Landini

PARIS/MILAN, Sept 18 (Reuters) - France's EDF is considering a preferred equity structure to secure investors for its sale of a minority stake in Italian utility Edison after Iran war LNG disruptions dealt a blow to its IPO options, three sources familiar with the matter said. 

The state-owned French nuclear utility has for months been studying an IPO among options for Edison as it seeks to raise funds to finance the construction of new reactors and maintain its ageing domestic fleet.

But Edison has a long-term liquefied natural gas supply contract with QatarEnergy, which has canceled its gas deliveries since April due to the effective closure of the Strait of Hormuz. 

That has hobbled the potential initial public offering or common share sale, forcing EDF, which wants to retain a majority stake in Edison, to delay, Reuters reported in May.

EDF is expected to reassess the situation at the end of September, with a preferred equity structure increasingly emerging as the favoured option, the sources, who declined to be named as the discussions are not public, told Reuters.

Under a preferred equity deal, buyers — likely large investment funds — would secure contractual rights giving them priority over other shareholders in the distribution of cashflows based on a predetermined targeted return on investment.

Such a structure would provide protection for new investors, allowing a sale process to begin while limiting the impact of volatility linked to the LNG supply disruptions on Edison's valuation, one of the sources said.  

DEAL COULD BE SIGNED BY YEAR-END IF TRANSACTION GOES AHEAD

Asked about the possibility of a preferred equity structure, an EDF spokesperson pointed to Chief Financial Officer Claude Laruelle's comments in July that the company was continuing preliminary work on a partial sale and would launch a process once it had greater visibility on the business.  

Edison declined to comment. 

If EDF decides to pursue a transaction and launches the process later this month, a deal could be signed by year-end or in early 2027, the sources said. 

Last year, two sources told Reuters that Edison could be worth between €7 billion and €10 billion ($8 billion and $11.5 billion). 

Edison's contract with QatarEnergy is for 6.4 billion cubic metres of gas per year, equivalent to 10% of Italy's total annual gas consumption.

In July, Edison cut its full-year earnings guidance for the second time this year after the gas supply disruptions and weak hydroelectric generation hit its first-half results.

($1 = 0.8725 euros)

(Reporting by Elvira Pollina in Milan, Francesca Landini in Milan and Forrest Crellin in Paris; Editing by Anousha Sakoui and Joe Bavier)