National Grid’s £6.8 billion Fundraising Effort and The Impact on London Stock Market’s Energy and Water Sectors
The London stock market took a hit recently, with over £6 billion erased from the energy and water sectors following National Grid’s announcement of a major fundraising effort. The FTSE 100 company revealed plans for a near-£7 billion rights issue, the largest fundraising by a European non-bank entity in 15 years. This move comes amidst fears that an upcoming election might delay energy policy decisions, causing uncertainty in the market.
National Grid’s rights issue aims to support a £60 billion investment programme over the next five years, with a focus on enhancing the UK’s electricity distribution and transmission infrastructure. The company also plans to allocate funds to network improvements in New York and New England. The new shares are priced at 645p each, offering a discount of nearly 35 per cent to Thursday’s closing price. National Grid anticipates that this investment will drive the expansion of its asset base and boost earnings in the coming years.
Following the announcement, National Grid shares experienced a significant drop, as did other energy firms like Centrica and SSE. Analysts attribute this sell-off to a combination of the fundraising news and concerns about potential policy delays due to the impending general election. Water companies, including Pennon and Severn Trent, also saw their shares decline, reflecting broader political risks in the market.
Despite the market turbulence, National Grid’s CEO, John Pettigrew, remains optimistic about the company’s plans. He emphasized that all political parties recognize the importance of investing in infrastructure for the energy transition, which should mitigate any negative impacts of a potential government change on National Grid. In addition to the rights issue, the company aims to streamline its operations by selling a liquefied natural gas terminal in Kent and its US renewables business.
Pettigrew assured shareholders that the investment would not significantly increase customers’ bills. He highlighted the importance of lower-cost renewable energy connections, which would reduce exposure to volatile global gas prices. The company also mentioned plans to adjust its dividend to reflect the rights issue and increase it in line with CPIH from next year.
Despite the uncertainties in the market, Pettigrew reported unanimous shareholder support for the rights issue before its announcement. He emphasized that the investment is crucial for the company’s growth and sustainability in the long run. National Grid aims to minimize the impact on customers’ bills by spreading out the costs of upgrading the electricity transmission network over several years.
In conclusion, National Grid’s ambitious fundraising effort has stirred up volatility in the London stock market, particularly in the energy and water sectors. While concerns about policy delays and potential government changes loom, the company remains steadfast in its commitment to investing in infrastructure for a sustainable energy future. Investors will be closely watching how National Grid navigates these challenges and executes its growth plans in the coming years.