The company will strengthen investment in renewables in the coming months, but guarantees not to let the weight of debt on activity increase. Therefore, it considers asset rotation.
Galp Energia is considering selling assets to limit the company’s indebtedness. The oil company led by Carlos Gomes da Silva will invest more in the coming years to reposition itself with a focus on renewable energies, while it wants to increase shareholder remuneration. In this scenario, the manager assures that he prefers divestments to increasing the debt burden.
“We will rotate assets if necessary to keep the debt below twice the EBITDA [earnings before interest, taxes, depreciation and amortization],” assured CEO Carlos Gomes da Silva, in a meeting in London with analysts. At the same event, CFO Filipe Crisóstomo Silva added that “asset rotation is very likely.”
The ratio measuring the weight of debt in oil activity is still far from the line drawn by the manager. With a net debt at December 31, 2019 of 1,435 million euros (down from 302 million the previous year), Galp Energia’s debt to EBITDA ratio stood at 0.7 times at the end of last year.
This is because of the increase in investment, which totalled 856 million in 2019. Between 2020 and 2022, this amount will grow to an average of between 1 billion and 1.2 billion euros per year, with over 40% being dedicated to capturing opportunities related to the energy transition and another 10% to 15% being allocated to renewable-based power generation projects and new businesses.
With profits falling (to 389 million in 2019), Galp Energia’s commitments to strengthen investment (to finance repositioning focused on renewable energy) and increase shareholder remuneration (by 10% per year until 2022) may become more difficult to achieve. But the use of debt will be limited, leaving open the rotation of assets.
“We have considered, in our base scenario, deconsolidation, which would imply not only selling parts of assets but also rotating assets,” says Carlos Gomes da Silva, without specifying which assets could be placed on the market. ECO knows that although there is no business yet being worked on, it could be a sale of non-strategic assets such as the natural gas distribution network.
The manager added that Galp wants to leave all options open, including making strategic acquisitions or finding new business partners. After buying a solar photovoltaic company in Spain, the oil company announced that it is looking for more business that can align with the new strategy, as well as partners to strengthen in the renewable segment.