National Grid launch £3.2bn investor cash-call

May 21 2010 by Iain Laing, The Journal

POWER provider National Grid has launched a £3.2 billion investor cash-call to help finance major investment to replace its ageing network and infrastructure.

The energy company said it was tapping shareholders to help fund a hike in investment to £22 billion over the next five years and to ensure it maintained its credit rating as spend increases.

National Grid made the announcement as it reported a 12% hike in underlying pre-tax profits to £1.97 billion in the year to March 31.

National Grid is upping its spend from more than £14 billion over the previous five years as it invests across its transmission network, including power lines and pylons.

The group owns and maintains electricity and natural-gas networks in the UK and the US, but said three-quarters of the new five-year investment plan will be spent in the UK and around 60% on transmission.

National Grid wants to continue focusing on replacing old assets, while also ensuring its networks are able to meet new regulatory and renewable energy targets. Steve Holliday, chief executive of National Grid, said the firm was “confident about the requirement for a step-up in UK investment“ as he launched the rights issue to raise £3.3 billion, or £3.2 billion net of fees.

“The board believes it will allow the group to fund a significant increase in capital investment and continue to deliver attractive returns to shareholders, whilst maintaining single A credit ratings for our UK operating companies in a more volatile economic environment,” added the group.

National Grid’s annual profits were up on strong results in its transmission and electricity businesses, although group revenues dropped 11%.

Allowed increases in regulated income above inflation drove transmission earnings higher.

The group also said it expects to see continued growth across all its businesses in the current financial year.

But shares were hit heavily, down more than 8% as investors digested news of the multi-billion pound rights issue. The share fall follows a 1.4% slide yesterday as analysts predicted National Grid would need at least £3 billion to maintain its credit rating if capital spend increased as expected.

Analyst Angelos Anastasiou at Ambrian said National Grid risked ill-feeling among investors over its rights issue.

“Many investors will feel misled by the management, who have consistently and vehemently denied the need for a rights issue.

“Management will point to the increased capex plans, but we believe that this will cut little ice with investors.”