More than £1.2 billion was lost from the value of Centrica today as the owner of British Gas scrambled to shore up its balance sheet with an unexpected share placing.
Shares in Centrica plunged by 10 per cent following the £750 million placing of 350 million shares, which the FTSE 100 company said was necessary to pay for two “attractive acquisitions” and trim its £4.4 billion debt pile.
It was the biggest one-day slide in its share price since 2008.
The owner of British Gas is battling avoid a ratings downgrade in the face of a steep drop in wholesale energy prices and fierce competition in the UK retail energy market.
In February, Moody’s warned that Centrica was at risk of a downgrade without action to bolster its balance sheet. It is due to issue a further update next Thursday, forcing the hand of chief executive Iain Conn, analysts said.
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In a statement, Centrica said: “The group faces low commodity prices and a challenging external environment, and its credit metrics and targeted strong investment grade credit ratings remain under pressure.
“A 7 percent 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,” the company said.
The announcement of a private placing, which will dilute the value of the shares held by 620,000 individual investors in Centrica by 7 per cent, shocked many in the City.
Oliver Salvesen, analyst at Jefferies, the US investment bank, said the move was “very surprising”.
Jefferies acknowledged that Centrica would be in a “modestly stronger financial position” after the placing, although it noted that “raising equity is an expensive way of paying down debt”.
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Mr Salvesen said a cut to its credit rating would be “very costly” because the company is a big energy trader which needs access to cheap bank debt.
Centrica said it needed the cash to fund the purchase of Neas Energy, a Danish energy management firm, for £170 million plus a second acquisition which has not yet been revealed.
Centrica is one of the most widely held stocks in the FTSE 100 following the privatisation of British Gas in the 1980s.
Mr Salvesen said the move reflected chief executive Ian Conn’s desire to “establish a reputation for tight capital management”.
The former BP executive, who was appointed to Centrica last January, has embarked on a major cost-cutting drive and is seeking to reduce the group’s oil and gas exploration and production arm to focus increasingly on its core domestic supply business.
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However, the sharp downturn in oil prices has affected the company’s ability to offload some parts of its business. The group has been struggling to sell a Canadian oil gas business for the past year.
Britain’s Big Six energy companies — Centrica, SSE, npower, Scottish Power, EDF and E.ON — account for 85 per cent of all UK households, but their dominance of the market is being steadily eroded by smaller independent suppliers, such as First Utility and Ovo Energy which have been offering cheap deals to lure away customers.