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RWE Falls on Report of Possible Option to Raise Capital

Jan. 2 (Bloomberg) -- RWE AG, Germany’s second-largest utility, dropped to a three-month low in Frankfurt trading on speculation it’s seeking an option to raise capital as much as 10 percent.

RWE was the biggest loser on Germany’s benchmark DAX index, sinking 3.6 percent to 25.645 euros, its lowest close since Oct. 4. Trading volumes exceeded the three-month daily average by almost a third.

While RWE doesn’t have firm plans for a share sale, it will seek approval for an option to raise capital at its April 16 annual general meeting, Handelsblatt reported today, citing people close to the supervisory board.

Michael Murphy, a spokesman for the Essen-based company, declined to comment on a possible proposal to the AGM when contacted by telephone. A capital increase isn’t on the agenda in the “foreseeable future,” he said later by e-mail.

The utility and larger competitor EON SE are taking steps to bolster their balance sheets after wholesale electricity prices tumbled, making many power plants unprofitable. RWE plans to cut its dividend for 2013 by half to 1 euro ($1.37) as the price plunge erodes earnings, it said in September.

“I cannot imagine that the municipal shareholders would agree with a capital increase or a reserve resolution,” said Guntram Pehlke, chief executive officer of shareholder Dortmunder Stadtwerke AG, which says it owns 3.7 percent of RWE. A reserve resolution grants authorization to the executive board following supervisory-board approval.

Blocking Minority

The last such resolution was executed two years after AGM approval, Pehlke said by phone from Dortmund. “It’s to be feared that it would also be used this time.”

RWE’s municipal investors include its biggest shareholder with a 16 percent stake. The municipal holders have a blocking minority interest, according to Handelsblatt.

The utility, seeking to cut costs and sell assets to reduce borrowings, had net debt of 30.8 billion euros as of Sept. 30. Last year it struggled to find buyers for its Dea oil and gas unit, having previously been forced to scrap a sale of gas fields in Egypt.

“With the company’s debt situation and debt targets -- should they be maintained -- successful disposals on a larger scale or a capital increase are necessary sooner or later,” Ingo Becker, an analyst at Kepler Cheuvreux, said today by phone from Frankfurt.

To contact the reporter on this story: Tino Andresen in Dusseldorf at tandresen1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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