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National Grid approves pounds 1bn Energis floatation

National Grid has given the green light to a pounds 1bn December flotat ion of Energis. Chris Godsmark, Business Correspondent, explains why Energis is working hard to dispel fears that the shares will go the way of other telecommunication industry flotations.
The confirmation of the flotation plans follows two years of uncertainty about the future of Energis, which runs telephone wires along the long- distance electricity transmission network.

National Grid had toyed with a private trade sale to a foreign telephones company, though Mike Grabiner, Energis chief executive, said there had been "no significant discussions" with other operators for several months.

David Jones, National Grid's chief executive, would give few details of the share sale yesterday, including the value of the float or the size of stake likely to be offered to outside investors.

But analysts have speculated that the Grid would sell a quarter of the company, the minimum necessary to gain a full Stock Exchange listing. Dresdner Kleinwort Benson has been signed up as Energis's financial advisers, with a prospectus due in November.

"For the foreseeable future we'd want to maintain the stake we finish up with after the sale. There's no strategy of selling down our stake in Energis," Mr Jones said.

The pounds 250m raised for the Grid would pay off loans made to Energis which last month stood at pounds 230m.

National Grid's management was at one stage criticised for its heavy investment programme in Energis, with pounds 338m so far injected into the venture. The company has accumulated losses of pounds 237m, while capital spending is still running at pounds 100m a year.

Under Mr Grabiner, who was poached from British Telecom last year, Energis's customer base has expanded rapidly though better marketing. Last year the company had revenues of pounds 97.1m and is likely to push this to around pounds 160m this year.

It made losses of pounds 54.2m before interest in 1996-97, but is on course to make a small profit, excluding its hefty bill for interest and depreciation.

Energis was the world's first network built around electricity cables to use an advanced form of optical fibre technology which offers almost limitless capacity by compressing signals into digital information.

The company, which targets only business customers, also claims to have better reliability and fewer reported faults than the older long-distance networks of BT and the former Mercury operation, now part of Cable & Wireless Communications (CWC).

Mr Grabiner has aggressively targeted the more lucrative large business market, specialising in internal phone and data networks for customers such as the BBC and Boots, the retail giant.

He insisted this approach, coupled with the fact that Energis's network was already completed, meant it should be valued differently from some other telecommunications companies. Recent flotations of Orange, CWC and Ionica fixed wireless business have brought few gains for investors.