Centrica announces placing to cut debt, make acquisitions

FTSE 100 energy supplier Centrica announced plans to raise around £750m in a placing to fund acquisitions and cut debt.

The owner of British Gas said it plans to issue around 350 million shares or 7% of its current issued share capital.

The company said the placing will enable it to secure two “prioritised and attractive” acquisitions to accelerate growth and develop capabilities in its customer-facing activities and reduce pressure on its credit metrics and its current strong investment grade credit ratings.

Goldman Sachs International and UBS are acting as joint bookrunners and corporate brokers.

Centrica said two acquisitions have been identified, “both of which deliver leading capabilities and double-digit percentage EBITDA growth potential, and will immediately contribute to earnings and cash flow once the transactions have closed.”

The company already announced in April that it had acquired Neas Energ, a provider of energy management and revenue optimisation services, for £170m plus working capital.

Centrica said it would expect sources and uses of cash to remain balanced in 2016 even after the two acquisitions.

“However, the credit metrics required for the current strong investment grade credit ratings are under pressure. A 7% placing therefore allows c.£350m for acceleration of Centrica’s customer-facing strategy through acquisitions and c.£400m for lowering of net debt, reducing pressure on credit metrics and the group’s targeted strong investment grade credit ratings, in what remains an uncertain environment.”

The company said it remains on track to cut E&P capital expenditure to £500m in 2016, as part of its £1bn capital investment limit, and remains on course to achieve £200m of cost efficiencies and reduce direct headcount by 3,000 in 2016.

RBC Capital Markets said: “We do not think this announcement will be well received by the market given Centrica’s previous mantra about balanced sources and uses of cash. We understand strategic growth acquisitions may be difficult to pass up, but it is very clear to us from the announcement that it is the credit metrics that are really driving the equity raise.”

At 0915 BST, shares were down 7.8% to 212.90p.