Dong Energy Seeks $1.4 Billion in Equity as Gas Bets Failed
Dong Energy A/S, Denmark’s largest non-financial issuer of bonds, said it could seek more than 8 billion kroner ($1.4 billion) in equity after losing money on natural gas investments.
The state-controlled utility will also sell assets and cut costs after debt jumped 42 percent last year, Skaerbaek, Denmark-based Dong said today in a statement. The company didn’t provide any details as to what form of equity injection it’s seeking. In a separate statement, the Finance Ministry in Copenhagen said Denmark will use the next few months to explore its options, including inviting new investors to participate in a share sale.
Dong, which in November said it will cut 600 jobs, lost 4.13 billion kroner last year, compared with a net income of 2.88 billion kroner in 2011, after writing down the value of gas storage contracts in Germany. Interest-bearing debt rose to 33.5 billion kroner at the end of 2012 from 23.6 billion kroner a year earlier.
“We have initiated an extensive action plan that includes divestment of non-core assets, cost cuts and injection of additional equity,” Chief Executive officer Henrik Poulsen said in the statement.
The yield on Dong’s 7.75 percent hybrid note due 3010 rose to 6.08 percent today from 6.07 percent yesterday, according to composite Bloomberg bond trading bid prices. The yield on Dong’s 6.5 percent note maturing May 2019 declined to 2.02 percent from 2.06 percent yesterday.
“We expect that the political negotiations on Dong’s future will yield positive results so that Dong will receive sufficient capital to uphold its investment grade rating,” Jens Houe Thomsen, a credit analyst at Silkeborg, Denmark-based Jyske Bank A/S (JYSK), said in a note. “Our buy recommendation is based on this assumption.”
Dong Energy has a BBB+ rating with a negative outlook at Standard & Poor’s after the rating company on Oct. 24 downgraded the utility from A-, citing challenges in the gas and power markets. Dong is rated Baa1 at Moody’s Investors Service.
There’s “broad backing” in the Danish parliament for a sale of “at least” 6 billion kroner to 8 billion kroner, the Finance Ministry said.
“The unexpected negative development on the European gas markets has been harsh, not just for Dong Energy, but also for a number of other European Gas companies,” the ministry said. “If Dong Energy doesn’t get a capital injection, it will mean the company needs to drop promising projects and lose unique competencies built up over a number of years.”
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