Enel, Europe’s most indebted utility, has slashed its dividend and investment plans for the next five years to cut debts and offset margin pressures from weak demand and increased competition in core markets Italy and Spain. The company, which owns Spain’s Endesa, said it expects core earnings in 2012 to fall to around 16.5 billion euros, well below a Thomson Reuters consensus of 17.5 billion euros and underpinning expectations its credit rating may be cut. Europe’s No.2 utility also cut its dividend payout by a third. “The major negative came from a new payout of at least 40 per cent. For 2012 this would imply a dividend per share of 0.14 euros and a 5 per cent yield. This is the lowest in the peer group and is likely to disappoint income holders,” UBS analyst Alberto Gandolfi said. Italy’s biggest utility painted a gloomy outlook for power generation in its core Italian and Spanish markets as weak demand, increasing competition and the solar power boom bite into margins. European power producers are feeling the pinch from the region’s weak economies following an austerity push by governments triggered by the euro zone’s sovereign debt crisis. “It’s a disaster. A very significant cut to dividend and to core earnings, with guidance well below market expectations. The plan is clearly tailored for the credit agencies,” a Milan-based analyst said. Sources close to the matter told Reuters on Wednesday credit ratings agency Standard and Poor’s was set to downgrade its rating on the heavily indebted utility. Shares in the Italian utility slumped as much as 8 per cent in early trade after publication of the group’s 2012-2016 business plan. They were down 6.06 per cent at 2.85 euros at 0936 GMT, by far the worst performer on the Stoxx 600 index of European utility. They have shed around 50 per cent since May when first signs of alarm over debt-laden Italy started to emerge. Enel, which operates in 40 countries worldwide and sells power and gas to around 61 million customers, said its international operations would be the pillar for growth. It said it would focus on strengthening its balance sheet as it moves to cut debt to 30 billion euros in 2016 from last year’s 44.6 billion euros.