Centrica announced today that it will raise £700 million by issuing around 350 million additional shares, a move that ratings agency Moody’s described as “a credit positive step”.
The issue represents around 7 per cent of the company’s share capital. Centrica will place the shares with institutional investors and said it will use the money raised to fund its acquisition of energy trading firm Neas Energy and a planned £150m acquisition of an unnamed consumer-facing business. The remaining proceeds will be used to reduce debt by £350 million.
Graham Taylor, a senior analyst and vice president at Moody’s said: ”The equity issuance is the latest in a series of significant actions taken by Centrica’s new management team to strengthen the company’s balance sheet, which have also included a 30 per cent reduction of the dividend, the introduction of a scrip alternative and the issuance of a £1 billion hybrid bond in 2015.” He added that the agency expects to complete its review of Centrica’s rating by mid-May.
Morgan Stanley Research commented: “The equity raise came as a surprise given Centrica so recently seemed comfortable with its balance sheet and a BBB rating. Investor confidence may be dented, but underlying EPS/FCF [underlying earnings per share and free cash flow] is largely intact. Eventually investor enthusiasm will revive, and valuation remains attractive.”
Lakis Athanasiou, a utilities analyst at Agency Partners said: ”New business initiatives in Centrica’s “customer facing strategy”, including acquisitions, are platforms for growth in the next decade. In the meantime Centrica faces three headwinds. We believe the CMA energy market remedies are a damp squib, but still believe competitive pressures will erode GB residential supply margins over time. Debt de-rating remains a risk, but should not affect dividends. Further placements may be required for sizeable acquisitions.”
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