UK power utility Centrica launches £2.2 billion to fund proposed stake purchase in British Energy
04 Nov 2008
It's not only banks that are asking investors for billions of pounds these days. Last week Centrica, the energy company behind British Gas, tapped its shareholders for £2.2 billion in what will be one of the biggest rights issues outside financial services this year. The amount is supposed to fund its purchase of a 25 per cent stake in British Energy (BE).
It will purchase the stake from Electricité de France (EDF), the giant French utility group that last month agreed to buy BE for a little over £12 billion. In addition to the stake, Centrica will also take a quarter share of the new nuclear power stations EDF plans to build in the UK. (See: EdF to acquire British Energy for $23.2 billion)
Centrica said it would raise the bulk of the expected £3.1-billion purchase price through a three-for-eight rights issue priced at 160 p a share. The company said the issue was pitched at a 39.9 per cent discount to the theoretical ex-rights price based on Thursday's market price of 306.25 p.
The issue has been fully underwritten by a consortium of banks including Goldman Sachs, Credit Suisse, and UBS. Centrica said the balance of the purchase price for the British Energy stake would be raised through additional debt and, possibly, asset sales.
Sam Laidlaw, the Centrica chief executive, said, ''Distinct from a lot of other rights issues and recapitalisations, this is about moving forward and delivering against a strategy.''
The plan for Centrica is to increase its access to secure power generation, cutting down its reliance on gas, and therefore its exposure to volatile wholesale prices. Buying into the EDF-run BE - a company central to the government's plans for a nuclear renaissance in the UK - would help address such concerns.
Although Centrica will not get guaranteed access to the power produced by the BE stations, its exposure to power generation through the shareholding - and the profits the new company will generate - will give it what Laidlaw terms ''a structural hedge''.
The EDF - BE deal is not expected to be completed before January, so until then Centrica's plans remain unconfirmed. In the event that a deal cannot be agreed with EDF, the UK group will look at other options. ''We are raising the finance on the expectation of the BE deal happening, but if it doesn't we will use the funds to buy other gas assets, primarily in the North Sea,'' Laidlaw said.
