Eni's biofuel unit could be valued up to 12.5 bln euros in KKR deal
KKR enters exclusive talks to buy stake in Eni's biofuel unit
Potential valuation of Enilive above market expectations
Suitors attracted by Enilive's integrated business
Adds comments from sources on the timing of the deal in paragraph 3 and on suitors' interests in paragraphs 9-11
By Francesca Landini
MILAN, July 23 (Reuters) -Italy's Eni ENI.MI is in exclusive talks with investment company KKR KKR.N over the sale of a minority stake in Enilive, a deal that could value the biofuel unit at 11.5-12.5 billion euros ($12.5-$13.6 billion) including debt, it said on Tuesday.
KKR's potential purchase of between 20% and 25% of Enilive would fall in line with Eni's strategy to develop separate units focused on specific businesses and make them financially independent.
A preliminary agreement on the sale to KKR could be signed in September when the exclusivity period ends, people familiar with the matter said, adding the transaction could be completed by the end of the year.
Biofuels, made from vegetable oil, waste cooking oil and grease, are expected to play a major role in decarbonising the truck, aviation and shipping sectors in coming years.
Market sentiment towards them, however, has become negative recently asprofit margins have weakened and concerns have grown about regulatory support.
Eni's bigger rivals Shell SHEL.L and BP BP.L have both announced in the last few weeks they were pausing biofuel projects.
Head of Global Energy Transition Research at Royal Bank of Canada (RBC) Biraj Borkhataria said that Enilive's valuation expected for the KKR dealwas well above market expectations whichthe bank believed were in the range of 7-10 billion euros.
Shares in Eni initially rose more than 1% on the Milan bourse before paring gains and trading almost flat by mid-afternoon, in line with the blue-chip index .FTMIB.
INTEGRATED BUSINESS
Enilive owns several biorefineries in Italy and abroad that produce biofuels using waste and vegetable oil partly coming from the group's agri-business in several African countries.
The company also makes biomethane, offers smart mobility services and owns a network of more than 5,000 multi-fuel stations in Europe.
The integrated nature of the business is one of the characteristics that has attracted potential suitors, the sources said.
Enilive is expected to record core earnings of around 1 billion euros this year, more than half coming from its fuel stations.
The Italian energy group said KKR was not the only potential buyer.
"The strong interest shown in this period by leading institutional financial investors could lead to the subsequent sale of a further stake of up to 10% of Enilive," it said in a statement.
Analysts calculated Eni could raise more than 4 billion euros should it complete two transactions selling up to 35% of Enilive at the higher price of the range indicated for the KKR transaction.
Eni said in March it would sell assets to raise net proceeds of 8 billion euros by 2027 to keep debt under control and fund the group's energytransition.
JPMorgan and Mediobanca were acting as financial adviser for Eni on the Enilive stake sale.
($1 = 0.9195 euros)
Reporting by Francesca Landini, editing by Susan Fenton, Barbara Lewis and Keith Weir
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