U.K. Utilities' Shares Fall on U.K. Election News, National Grid Discounted Fundraise

By Christian Moess Laursen

Shares across the U.K. utility sector are tumbling on U.K. snap election news and National Grid's surprise, heavily discounted rights issue to fund its new investment plan.

British energy-infrastructure company National Grid said Thursday that it would raise around 7 billion pounds ($8.90 billion) by way of a rights issues at 645 pence per new share. This is a discount of 35% compared with Wednesday's closing price of 1,127.5 pence.

Along with asset divestments and a cut to dividends, the fundraise will go to support its new plan of investing GBP60 billion in energy infrastructure in the U.K. and U.S.

Analysts said the timing and size of the equity raise was surprising. Shares quickly dropped around 10%.

In addition, National Grid--one of Europe's largest energy-infrastructure companies--booked a 15% decline in pretax profit for fiscal 2024.

"It's not a good look when a company reports a slump in profits and then goes cap in hand to shareholders, asking them to stump up GBP7 billion," AJ Bell head of investment Russ Mould said in a market comment.

The rights issue caused concerns about the state of the U.K. utility sector, spooking investors, Mould said. Shares in Drax, Pennon, United Utilities and Severn Trent fell 6% or more in European afternoon trading.

In addition, the U.K. government's call for an election on July 4 has created heightened risks for water utilities in particular, Citi analysts wrote in a note to clients.

The water sector was set for its latest review by the U.K. water regulator in June, which would determine the price level the companies can charge their customers for a five-year period.

This so-called draft determination will now likely be postponed, Citi said, adding that some members of parliament have also been calling for extra measures, including dividend restrictions, amid reports of pollution.

Meanwhile, power-generation company Drax could see another delay on the long-awaited transitional mechanism for large-scale biomass generators, Citi added.

"It remains to be seen what a new government's view would be on biomass, bridging and bioenergy with carbon capture and storage," it said.

At 1352 GMT, shares in National Grid were down 11% at 1,002.00 pence, Drax traded 9.1% lower at 504.50 pence, Pennon shares were down 5.7% at 627 pence, United Utilities shares fell 4.6% to 1,027.00 pence and Severn Trent dropped 4.8% to 2,511.00 pence.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

May 23, 2024 10:14 ET (14:14 GMT)

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