Edison is considering a capital increase of more than 1 million eurosto strengthen its balance sheet as non-profitable contracts

Edison SpA, Italy's second largest producer of energy, is considering a capital increase of more than 1 million euros (1320 million dollars) to strengthen its balance sheet as non-profitable contracts for gas supply, threatening to further erode more income, people with direct knowledge of the situation, he said.

Edison earnings before interest, taxes, depreciation and amortization next year may be 30 percent below consensus expectations of analysts of about 1.35 million euros, and may be 50 percent less than on the result conversations with suppliers such as Russia's OAO Gazprom, said the people, who declined to be identified because the information is not public.

decline in energy demand can also force based in Milan Edison to record the value of its stake in the Italian electricity Edipower by 40 percent and gas field offshore Abu Qir Egypt about a third, the people said . Edison's major shareholders are Electricite de France SA and Italian utility A2A SpA.

Edison is losing money supply contracts, and you're paying more for imports of natural gas that can sell the fuel. The company, leading to net debt of almost 4 billion euros at the end of the third quarter, said in October contracts will negatively impact 2010 EBITDA of 300 million euros. Edison's credit rating was reduced one notch to BBB last month by Standard & Poor's.

Shares Fall

Edison shares fell to 6.3 percent, the steepest intraday decline in seven months. The action was 5.4 percent, to € 0.88 in Milan at 9:22 am. A2A retreated 3.1 percent to € 1,045 and EDF declined 1.4 percent to € 31.52 in Paris.

A capital increase was discussed by the Edison Board earlier this month and a decision on whether to proceed has not been, the people said. Investment bankers are considering various options to strengthen the balance sheet of the company, including a capital increase, they said.

An Edison spokesman could not immediately comment when contacted by phone. EDF spokeswoman Carole Trivi was not immediately available for comment in Paris. A call to the A2A press office was not immediately returned.

Edison, which uses gas in power generation and supplies directly to customers, may have to write the book value of its 50 percent stake in Italian generator Edipower € 2,200,000,000 to about 3.6 million euros, said people.

Economic Slump

In Italy, energy demand has fallen amid an economic crisis, while Edison is paying more for natural gas can be sold because of contracts signed when oil prices were higher.

"The group of financial indicators have deteriorated significantly as a result of pressure on earnings and cash flows in light of difficult market conditions in Italy," said S & P said in a report of 02 November. The ratings company also cited the January 2009 acquisition of a concession for several years to develop and explore the area of Abu Qir for more than 1 million euros and a failure to renegotiate gas contracts.

Edison had hoped to conclude the sale of a stake in the Abu Qir field earlier this year, Edison CEO Umberto Quadrino said in October 2009. The company was never able to find a buyer for participation, a person familiar with the matter said.

Edison said in October its debt is closer to 3.6 million euros at the end of the year. Moody's downgraded the long-term senior unsecured to Baa3 Edison in October.

More Stock

An offer of rights to require shareholders to buy more shares or the risk of dilution of their shareholdings. EDF owns about 50 percent of Edison. A2A, the largest municipal utility in Italy, owns 51 percent of the holding company Delmi Spa, which jointly owns Transalpina di Energia Srl with EDF. Transalpine has 61.2 percent of Edison. Carlo Tassara SpA, the financial holding Romain Zaleski, owns a stake of around 10 percent.

EDF's involvement in Edison supports the rating of the company's debt, which would be a lower level without the support of the French company, S & P said. A2A, meanwhile, is trying to reduce its own debt, which amounted to € 4,700,000,000 by the end of last year through the sale of assets.

EDF and A2A in the past have differed on the A2A asked to play a greater role of Edison management, as well as the company's effort to create a nuclear company to a rival between EDF and Enel SpA A2A said in June that hired investment bank Mediobanca SpA to advise on options for Edison.

The Edison control companies through an agreement that expires in September 2011 and must be renewed six months in advance. Edison Quadrino said in October that the price of the shares of Edison was "a problem", as companies sought to reach agreement on the control.

Edison shares rose 15 percent last week after EDF CEO Henri Proglio reiterated its commitment to Italy and EDF agreed to sell a stake in a German power company for 4.7 billion euros. That prompted speculation that the company will use the funds to buy the rest of Edison, which has a market value of around 4.7 million euros.