Italy's Enel SpA (ENEL.MI) is considering a capital increase worth up to EUR7 billion to slash debts ahead of next week's key strategy presentation, two people familiar with the matter said Thursday.

Enel is still working on the details of the share sale, as it discusses the eventual deal with banks before deciding which ones will help it arrange the rights issue, said the two people, who asked not to be named.

The Rome-based utility is working on the capital increase ahead of next Thursday's presentation of its 2009-2013 strategy plan. The market will be looking to the strategy plan for measures to slash Enel's debt pile, as well as a possible rights issue announcement, both of which would reduce the likelihood of a rating cut by credit agencies.

Enel's net debt is expected to top EUR60 billion after it agreed last month to buy a 25% stake in Endesa SA (ELE.MC), bringing its total holding in the Spanish utility to 92%. It also faces EUR13.4 billion in maturing debt in 2010, including a EUR2.2 billion revolving credit facility that can be extended to 2012.

The possible share price discount of the rights issue could be up to 30%, the people told Dow Jones Newswires Thursday. The timing of the capital increase is unclear at this time, they added.

Four banks are expected to lead the capital increase deal, said the people. Italy's Mediobanca SpA (MB.MI) and Intesa Sanpaolo SpA (ISP.MI) are very likely to be two of them, with the other two expected to be selected among heavyweights Goldman Sachs Group Inc. (GS), Morgan Stanley, Credit Suisse Group (GS) and J.P. Morgan Chase & Co. (JPM). There is concern among credit agencies over Enel's growing debt pile amid a deepening global financial crisis. Enel's net debt at the end of December was about EUR50 billion.

Enel has set aside noncore assets to sell off and thus trim its debt load. In December, the utility agreed to sell its high-voltage power lines for about EUR1.15 billion. It stared the bidding process for the disposal of a majority stake in natural gas network. It is also seeking to sell a stake in its renewable energy operations.

Standard & Poor's Rating Services warned in January it may downgrade its "A-" long-term corporate credit rating on Enel. It cited the company's "weak" capital structure, delays in its asset disposal program and "significant" refinancing risk as some of its concerns.

In the event a capital increase is planned, Enel shareholders are expected to have to approve it at an extraordinary meeting.

Enel is controlled by the Italian Treasury, which has a stake of about 32%. Treasury Minister Giulio Tremonti declined to comment Thursday at a conference in Rome.

Last Friday, Enel said a capital increase was one of the options it was considering. Since then Enel's shares have she about 13% of their value.

At 1548 GMT, Enel shares were EUR0.04, or 1.09%, lower at EUR3.64, less than the 4.69% drop in Italy's benchmark S&PMib Index.

Company Web site: www.enel.it

-By Liam Moloney, Dow Jones Newswires; +39 06 6976 6924; liam.moloney@dowjones.com
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