Jeremy Warner: Centrica raises £2bn for BE buy

Outlook My word. This is indeed a rarity – a rights issue which is for the purpose of expansion, rather than recapitalisation or paying down excessive debt. The £2.2bn rights issue announced by Centrica yesterday is earmarked for the acquisition of a 25 per cent stake in British Energy, the nuclear power company being bought by Electricite de France (EDF). It is a condition of the EDF deal that Centrica raises the finance to fund its share of the purchase, so it is no surprise to hear that big investors who stand to gain handsomely in the British Energy takeover are also coming out in strong support of the Centrica rights. None the less, it is a bit of an oddity. The Centrica interest in British Energy is by no means done and dusted. It might yet fail on competition grounds, or simply because the two cannot agree terms.

In those circumstances, Centrica says it will spend the money on something else, or return it to shareholders. Why not just borrow the money instead and raise it through a rights issue later once the deal is done? A year ago, that's probably what would have happened. But just in case you hadn't noticed, it's impossible to borrow money for anything these days. Equity valuations may be goingdown the pan, but actually equity seems to be the only source of available capital left.