Business Irish

Saturday 24 February 2018

Bord Gáis owner raised €951m in surprise share sale to protect credit rating

Bord Gais
Bord Gais

Centrica, the energy supplier that owns Bord Gáis, raised £750m (€951m) in a surprise share sale on Thursday to pay off debt and protect its credit rating after being hit by weak energy prices and tough retail market competition.

Ratings agency Moody's said the share sale was credit positive, three months after warning the company it could be downgraded. It will keep its rating under review until mid-May.

The British Gas owner said it had placed 350 million new shares, equivalent to roughly 7pc of its issued share capital, at 200p, roughly 4pc below market value.

The utility said its intention was to raise money to pay off its debt pile, in order to maintain its credit rating, and to finance two acquisitions.

Its shares closed down 9.8pc, by far the biggest loser on London's bluechip FTSE 100 index.

The utility is in the middle of a strategic turnaround spearheaded by former BP executive Iain Conn who wants to shift the utility's focus away from oil and gas production to energy supply and trading.

"The credit metrics required for the current strong investment grade credit ratings are under pressure," Centrica said in a statement.

"A 7pc placing therefore allows ... for lowering of net debt, reducing pressure on credit metrics and the group's targeted strong investment grade credit ratings, in what remains an uncertain environment," it said.

Moody's placed Centrica's Baa1 rating on 'negative watch' in February, one step before an actual downgrade that would make it more difficult for the company to raise funds.

The utility had a net debt mountain of £4.4bn at the end of the first quarter and announced a £170m acquisition of Danish energy management company Neas Energy two weeks ago.

A second acquisition in the service sector worth around £150m is close to completion, Centrica said.

"Raising equity is an expensive way of paying down debt," said analysts at Jefferies, who rate Centrica's stock as a buy.

An alternative way to improve cashflow would have been another dividend cut, a move that would have likely angered important investors.

Centrica trimmed shareholder payouts by 21pc last year just one month after Conn's tenure started.

The utility has also tried to raise cash from upstream disposals, putting its Canadian business and assets in Trinidad and Tobago up for sale last year.

With energy prices remaining weak, Centrica is unlikely to have received appropriate bids for these assets, analysts said.

Many utilities across the European continent have been hammered by weak energy prices and find themselves at a crossroads requiring a new business strategy.

"I think there will be a number of European utilities that will also have to face this judgment call of do we accept a rating downgrade or do we attempt to support the balance sheet," said Ashley Thomas, utilities analyst at Societe Generale.


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