Photographer: Chris Ratcliffe/Bloomberg

EON Slumps to Two-Month Low After Capital Plan Rattles Investors

  • Plans to cut 1,000 jobs in its domestic market by next year
  • Utility targets 43% gain in dividend for 2017 to 0.30 euros

EON SE fell to its lowest level since January after posting a record annual loss and announcing it will raise money from investors to help pay for its nuclear storage liabilities.

Germany’s biggest renewable energy producer may sell new shares equal to 10 percent of existing equity as early as Thursday as part of a plan to raise extra capital first outlined last year. The company will also offer dividend payments in shares and plans to sell assets.

EON’s net loss swelled as it wrote down a further 900 million euros in the fourth quarter to take the total charges related to a slump in electricity prices and the spinoff of its coal and gas-fired power business over the past four years to about 25 billion euros ($26 billion). Its difficult day was capped with downgrades by S&P Global Ratings and Moody’s Corp.

Germany’s biggest renewable energy producer plans to reduce net debt by about 24 percent to 20 billion euros ($21 billion) through measures including allowing investors to receive dividends as shares instead of cash and the sale of non-strategic assets, the Essen-based company said Wednesday.

“EON’s medium-term targets are a mixed bag in our view, as the company points to several potential measures including a capital increase and scrip dividend to strengthen its balance sheet, which could weigh on the share price,” said Emmanuel Retif, an analyst at Raymond James in Paris.

DAX Laggard

EON was the worst performer on Germany’s DAX index on Wednesday, sliding 3.5 percent to 6.77 euros in Frankfurt, its lowest close since Jan. 10. It slumped the most since August in intraday trading.

Based on the company’s market capitalization, the sale of new shares may raise more than half the 2 billion euros needed to fill the gap between a one-time payment to the government later this year and what it has already set aside. 

To adapt to falling power prices that erode the value of conventional plants, the utility listed its Uniper SE unit in September to focus on renewables, grids and retail customers. RWE took similar steps by spinning off similar businesses into Innogy SE, which Engie SA of France is said to be weighing an offer for.

EON wants to remain independent, Teyssen said Wednesday at a press conference in Essen. The utility is “open” to acquisitions if they add value, he said on a call with analysts.

Debt Reduction

EON’s plan to reduce net debt by about 7 billion euros also includes the transfer of the company’s stake in the Nord Stream 1 gas pipeline into a pension fund and the sale of Uniper stock it holds.

“Twenty billion euros of debt is still a lot, especially if interest rates increase,” said Thomas Deser, a fund manager at Union Investment, which holds EON shares.

EON has introduced a plan to cut costs by 400 million euros per year, resulting in 1,300 job cuts, of which 1,000 will be in its German home market.

The net loss at Germany’s biggest renewables generator widened by 21 percent to 8.45 billion euros, the Essen-based company said.

Adjusted net income fell 16 percent to 904 million euros. The figure, which doesn’t include writedowns and earnings from minority-owned Uniper, beat the 829.3 million-euro average estimate of 16 analysts compiled by Bloomberg. The utility forecast it will be between 1.2 billion euros and 1.45 billion euros this year.

It proposed a dividend of 0.21 euros a share for last year, rising to 0.30 euros for 2017.

— With assistance by James Cone

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