--Shares tumbled, helping drag down the Ipsa index

--Conference call with investors fails to ease market concerns over capital increase

--Enersis plans to use proceeds to pursue M&A strategy, develop greenfield projects

 
   By Graciela Ibanez 
 

SANTIAGO, Chile--Chilean energy holding company Enersis SA (ENI, ENERSIS.SN) failed to assuage investor and analyst concerns Thursday over its plan to boost capital by as much as $8.02 billion.

Enersis surprised the market with its announcement of the largest capital increase in Chile's history. In the deal, Enersis's controlling shareholder, Spain's Endesa SA (ELE.MC), would subscribe using $4.86 billion in noncash assets such as stakes in companies. The remaining $3.16 billion would be raised on the local market.

Enersis's share price tumbled 13% Thursday, while shares of Chilean power producer Empresa Nacional de Electricidad SA (EOC, ENDESA.SN), which is controlled by Enersis, lost 4%. The declines dragged the Ipsa down 1.3%, as these two companies together have a weighting of about 12% on the blue-chip index.

In a conference call, the company's chief financial officer failed to lift sentiment as he didn't give details on how proceeds from the capital increase would be used or the valuation of assets from the Spanish company.

Enersis CFO Alfredo Ergas repeatedly indicated the company would use the proceeds to pursue greenfield projects and mergers and acquisitions in countries where it operates--Chile, Argentina, Colombia, Peru and Brazil.

Despite questions from several analysts, he declined to disclose details on the type of deals Enersis would seek, or say if the company planned to delist any of the firms in which it holds a controlling stake.

Analysts were also concerned about the valuation of Endesa's Latin American assets--$4.86 billion--which many analysts deemed to be overpriced.

As part of the capital increase, the Spanish company will contribute its stakes in 13 companies including Endesa Brasil and Ampla Energia e Servicos SA (CBEE3.BR), which holds a 20.6% stake in Companhia Energetica do Ceara (COCE5.BR), in Brazil.

The Spanish company has also stakes in Colombia's Emgesa and Codensa; Peru's Empresa de Distribucion Electrica del Lima Norte SA (EDELNOC1.VL) and Piura; San Isidro in Chile; and Argentina's Dock Sud, Edesur, Cemsa and Yacylec.

Enersis would consolidate all of Endesa's operations in Latin America and increase its installed capacity in the region to 9,684 megawatts from 7,691 megawatts with the planned capital increase.

"Why is this [Enersis strategy] changing now?" an analyst said, arguing Enersis already had room on its balance sheet to pursue an aggressive M&A strategy.

Enersis wouldn't use the deal's proceeds to pay down its own or parent company's debt, as some analysts had feared, a person in the industry said.

Enersis's capital increase will be discussed at a shareholders' meeting on Sept. 13. The deal requires approval from two thirds of Enersis's existing voting shares.

Write to Graciela Ibanez at graciela.ibanez@dowjones.com

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