Centrica Slides Most in Seven Years on $1 Billion Share Sale

  • Company plans to sell 350 million shares to fund acquisitions
  • Shares drop as much as 11%, biggest decline since Dec. 2008

Centrica Plc plunged the most since December 2008, erasing this year’s gains, after the utility said it will sell about 7 percent of its issued share capital to pay for acquisitions and reduce debt.

The U.K.’s biggest supplier of energy fell as much as 11 percent after unveiling a plan to raise about 750 million pounds ($1.1 billion) from a private placement of shares to help fund two “prioritized and attractive acquisitions.” The company is the worst performer in the Stoxx 600 index today.

The Windsor, England-based company is buying Neas Energy A/S, a Danish energy trader, for about 200 million pounds, while a “customer facing” acquisition worth about 150 million pounds is nearing completion as Centrica focuses on energy marketing and trading. The utility, which gets about a third of its income from oil and gas production, had its debt outlook cut to “negative” in February by Standard & Poor’s and Moody’s Investor Services amid falling power and gas prices.

“We understand strategic growth acquisitions may be difficult to pass up, but it is very clear to us from the announcement that it is the credit metrics that are really driving the equity raise,” said John Musk, a utilities analyst at RBC Europe Ltd.

Centrica’s shares were trading down 10 percent at 207.1 pence by 1:01 p.m. in London.

Reduce Debt

The share placing will also help lower net debt, “reducing pressure on credit metrics and the group’s targeted strong investment-grade credit ratings, in what remains an uncertain environment,” Centrica said in the statement.

Centrica reduced net borrowing to 4.4 billion pounds in the three months through March from 4.7 billion pounds at the end of 2015, the company said in a trading update on April 18. Its debt is ranked BBB+ by S&P and Baa1 at Moody’s, the ratings companies’ third lowest investment-grade levels.

The placing probably means that Centrica doesn’t expect to complete the disposal of its Canadian natural gas venture this year, RBC’s Musk said. Centrica said Thursday it couldn’t comment on the timing of the planned disposal.

Centrica will place with institutional investors about 350 million shares that are expected to be admitted into trading on May 9. Goldman Sachs Group Inc. and UBS Group AG are acting as joint bookrunners and corporate brokers for the placing.

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