More than £6 billion has been wiped from the energy and water sectors on the London stock market after National Grid revealed plans for a major fundraising effort and fears that the upcoming election could delay energy policy decisions.
The FTSE 100 company has announced a rights issue worth almost £7bn, representing the largest fundraising by a European non-bank entity in 15 years. Proceeds from the fully subscribed rights issue of £6.8 billion will support a £60 billion investment program over the next five years, almost double the previous period's outlay. More than half of this investment will strengthen the UK's electricity distribution and transmission infrastructure, while the remainder will be allocated to improving networks in New York and New England.
The new shares will be priced at 645 pence per share, reflecting a discount of approximately 35 per cent to Thursday's closing price. National Grid expects this investment to expand its asset base at an average compound annual growth rate of 10 percent through 2029, and boost earnings by 6-8 percent annually from 2025.
Following the announcement, National Grid shares fell 122.5p, or 10.9 per cent, to £10.05, while other energy companies, including Centrica and SSE, also saw significant falls. Deepa Venkateswaran, an analyst at Bernstein, attributed the sell-off to a combination of National Grid's fundraising and a potential policy delay due to the upcoming general election.
The rights issue was revealed shortly after Prime Minister Rishi Sunak called an election, raising the prospect of a Labor government taking power in July.
Water companies were hit harder, with shares in Beynon and Severn Trent falling by 7.1 per cent and 5 per cent respectively. Analysts at Citi point out that these declines are linked to political risks, such as potential restrictions on dividends under a Labor government.
John Pettigrew, CEO of National Grid, confirmed that political parties agreed on the necessity of energy transition infrastructure, minimizing the impact of a potential government change on the company's plans.
In addition, National Grid intends to streamline its operations through the sale of its Kent LNG terminal and its US renewable energy business. The dividend of 58.52 pence per share will be adjusted to reflect the rights issue and will increase in line with CPIH from next year.
Despite the larger-than-expected rights issue, Pettigrew announced unanimous shareholder support prior to the announcement. He also noted that the investment would not raise customers' bills significantly. “This investment will slightly increase grid costs but will facilitate low-cost renewable energy connections, reducing exposure to volatile global gas prices,” Pettigrew explained, noting the impact of recent gas price increases following the conflict in Ukraine.
Based on the current price cap, a typical household energy bill of around £1,800 a year includes a £22 transmission network upgrade, with costs spread over 40 to 60 years.