Origin’s New CEO Calabria to Focus on Cutting $6.9 Billion Debtby
Energy markets chief to succeed Grant King next month
Asset sales also on the cards, though demerger ruled out
Frank Calabria, who was named Friday as Origin Energy Ltd.’s new chief executive officer, said he’ll focus on paying down a A$9 billion ($6.8 billion) debt pile and consider more asset sales when he takes over from Grant King next month.
“We set a target and I would be very disappointed if we don’t get well below that" by June 2017, Calabria, 48, said in a phone interview. "Clearly we want to accelerate debt reduction.”
Origin has been weighed down by debt used to help fund its share of the A$25.9 billion Australia Pacific liquefied natural gas project in Queensland state, which is nearing completion. It’s among oil and gas producers that are struggling as lower prices and weaker demand growth crimp revenue, while new LNG projects from Asia to North America expand a gas glut.
Calabria, who joined Australia’s largest electricity company as chief financial officer in 2001 and is currently its energy markets head, takes the helm on Oct. 19 -- the first change at the top in 16 years.
“I think one of the good things that Frank brings to the table is that he’s not an oil and gas guy,” said Simon Mawhinney, chief investment officer of Origin shareholder Allan Gray Australia, which has A$4 billion of funds under management. “It’s that side of the business that has hurt Origin in the past, and perhaps him not being so close to oil and gas himself may be good for the organization going forward.”
Origin shares in Sydney rose 5.8 percent to A$5.43 as of 4:00 p.m. local time, the most in more than two months. The benchmark S&P/ASX 200 Index fell 0.7 percent.
Calabria said he would add more renewable energy production to Origin’s portfolio and continue to explore assets sales. The company already plans to sell A$800 million of projects.
“We’re on a path to putting a lot of renewable energy in the portfolio,” said Calabria. “The nation is on a path to reduce reductions and Origin sees that as part of its future.”
Announcing a 41 percent drop in annual profits last month, King, 62, left the door open to a potential split of the oil and gas production businesses from its generation and retail units when the company moved into a stronger debt position. The company announced it had cut net debt by A$4 billion over the year ending June 30 by selling assets and issuing equity.
Chairman Gordon Cairns said in an interview Friday such a spin-off wasn’t “doable” and had been ruled out.
"It is not a consideration," Cairns said. “With A$9 billion of debt and a market capitalization of A$9.5 billion, it is not an option.”
The reduction in net debt, as well as the global rebound in oil prices, have provided some succor for Origin’s creditors.
The yield premium over Treasury bonds on the company’s largest outstanding U.S. dollar debenture, an $800 million issue due in October 2018, has fallen to 198 basis points from as much as 636 in February, according to Bloomberg pricing.
Mawhinney said Origin was right to focus on debt reduction as its top priority.
“I don’t think they can afford to demerge and I don’t think demergers are going to help us one bit,” he said. “It gives us two businesses to own and I think it would be better if people put that whole demerger to one side provided the business going forward can operate in a way where the one half doesn’t subsidize the other half.”