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Shares in British Gas owner Centrica plunge 10% after announcing ‘suprise’ £750m share sale to help it cut debts and buy two rivals

Shares in British Gas owner Centrica plunge 10% after announcing ‘suprise’ £750m share sale to help it cut debts and buy two rivals

British Gas owner Centrica was the biggest faller on the FTSE 100 today after it announced it was looking to raise £750million through a share sale to help it cut its debts and buy two rivals.

Britain’s largest energy supplier said it intended to sell 350 million shares to institutional investors in a bid to fund two ‘attractive acquisitions’ worth a total of around £350million and to pay down borrowings.

The surprising news sent Centrica’s share price diving, with its shares topping the FTSE 100 fallers list at lunchtime, down 10 per cent, or 25.0p, at 206.1p.

The share placing is being conducted via an accelerated bookbuild which will set the price and total size of the amount raised by the offering.

Analysts at Jefferies International said the two acquisitions planned were in line with Centrica strategy, but added that raising around £400million to pay off debt had caused ‘some surprise’.

‘Raising equity is an expensive way of paying down debt,’ Jefferies added.

‘Centrica’s new management have been trying to establish a reputation for tight capital management; it is difficult to say whether today’s announcement enhances or diminishes that reputation.’

One of the acquisitions is that of European energy management company Neas Energy, which Centrica bought for £170million last month. Denmark-based Neas provides customers with route to market and offers short-term power trading in six European countries.

Centrica also said it was close to completing another ‘customer-facing’ acquisition, which is expected to cost £150million. The rest of the £400million it expects to raise from the share placing will be used to pay down its debt.

The supplier has seen its share price come under pressure over the past two years as weak oil and energy prices have weighed down on its stock.

Centrica said it continued to face low commodity prices and a challenging external environment, and that ‘its credit metrics and targeted strong investment grade credit ratings’ remained under pressure.

Credit rating agency Moody put Centrica’s Baa1 rating on ‘negative watch’ in February due to low gas and energy prices and because it said the group’s cost-saving programme and dividend cut announced last year was not enough to protect its credit metrics.

The firm cut its full year dividend to 12p per share, down from 13.5p in 2014, after wholesale gas prices fell sharply and the global commodity rout took hold.

In February, Centrica unveiled a mixed bag of results with profits at British Gas up 31 per cent, but overall group profits sinking 12 per cent to £1.46billion.

Centrica held its annual general meeting last month, when chief executive Iain Conn fought off a revolt over his pay deal of £3million for 2015, a year in which the British Gas owner recorded losses of £857million.

British Gas has cut prices three times since the beginning of 2015, and in January it lowered gas tariffs in line with other Big Six providers, announcing a 5.1 per cent decrease from March 16.

However, wholesale prices actually dropped by much more – 34 per cent over last year.

Last month, British Gas said it had plans to cull 684 office jobs and close its office in the Midlands after losing more than a quarter of a million customers this year.



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