National Grid is to tap investors for £3.2bn to help fund £22bn-worth of capital investment over the next five years, the transmission company said yesterday.
Under the two-for-five rights issue plan, the company will issue more than 990 million new shares at 335p each, a 43.7 per cent discount on the previous day's closing price. The prospectus will be published next Tuesday and dealing in the new shares will go ahead on 14 June.
The cash call came alongside annual results showing underlying operating profits up by 7 per cent to £3.1bn, although revenues were down by 10 per cent at £13.9bn. Sales were dragged down by recession, but profits rose on strong performance from the transmission, energy distribution and generation businesses. The dividend was raised by 8 per cent to 38.49p, as planned. The stock dropped more than 8 per cent on opening, to close down 43.5 at 576.5.
Steve Lucas, National Grid's finance director, said investment levels which hit a record £3.3bn last year are central to the group's growth. "We've been ramping up investment for the last five years and that's been feeding through," he said. "We don't do it for fun, we do it with secure regulatory arrangements that ensure we get paid for the investment as we make it."
Boosted by the rights issue, National Grid will raise investment levels considerably further, adding £5.6bn to UK-focused capital spending over the next five years to fund an ambitious array of projects while maintaining the single-A credit rating. The programme is expected to create 5,000 engineering jobs.
The plan was announced on the same day as the Government's full coalition agreement, and National Grid was keen to stress how closely its plans dovetail with agreed policies such as plans for a "smart grid" and an offshore transmission network.
"The whole programme is about decarbonising the system and security of supply," Nick Winser, the company's transmission director, said. "The investment is attractive for both customers and investors because these are crucial issues for the nation in achieving major energy policy goals."
Around half of the money raised will go towards infrastructure reinforcements in regions set for a massive influx of generating capacity from renewable sources and nuclear power, such as Scotland and Suffolk. The scheme will also strengthen the Grid's ability to ship power onshore from offshore facilities such as wind farms or wave-powered generators.
National Grid will also spend £800m to shift Britain's gas transmission system from its current focus on dwindling North Sea gas to supplies from Norway, the UK's two liquefied natural gas (LNG) terminals at Milford Haven and the Isle of Grain, and also from planned gas storage facilities.
A further £800m is for "rewiring" high-voltage underground cabling in London and Birmingham over the next 10 years. And another £1bn fund will be available for projects still under consideration. Options include up to three more electricity interconnector cables linking Britain to continental Europe, a boost to National Grid's involvement in carbon capture and storage projects, and the creation of an all-new subsea grid linking windfarm clusters.