Britain’s National Grid (NG.L) has announced plans to raise approximately £7 billion ($8.9 billion) through a rights issue, marking the largest UK capital raising effort of this kind since 2009. This move is aimed at supporting the company’s ambitious £60 billion investment in energy networks, essential for achieving the UK’s target of decarbonizing its power sector by 2035. This massive investment will involve connecting numerous renewable power plants to the electricity grid.
The announcement came shortly after Prime Minister Rishi Sunak declared a national election for July 4. However, National Grid CEO John Pettigrew assured that a change in government would not materially impact the company’s plans, citing the stability of the UK’s regulatory framework.
Despite the strategic importance of the capital raise, shares in National Grid fell over 10% to £10.09 by mid-morning trading, with other British utilities also experiencing sharp declines due to concerns over political risks in the sector.
The Largest UK Rights Issue in Over a Decade
This rights issue is National Grid’s largest ever and its first since 2010. According to Dealogic data, it is also the largest in the UK since 2009 and Europe’s biggest since 2021. National Grid, which operates energy systems in both the UK and the US (New York and Massachusetts), plans to allocate about £31 billion to UK electricity transmission and distribution, with the remainder directed towards its US operations.
Details of the Rights Issue
National Grid plans to issue 1.09 billion new shares at 645 pence per share, on the basis of seven new shares for every 24 existing shares. This represents a 34.7% discount when adjusted for a recommended 2024 final dividend of 39.12 pence per share. Additionally, the company intends to sell its Grain liquefied natural gas terminal and its US onshore renewables business to focus more on its core networks business.
Over the next five years, National Grid will invest £60 billion, nearly doubling its investment from the previous five-year period and creating over 60,000 jobs. This substantial investment is expected to drive significant growth, with the company forecasting annual asset growth of 10% by the end of its 2029 financial year.
Market and Investor Reactions
Despite a 15% decline in pretax profit from continuing operations to £3.05 billion for the year ending March 31, National Grid’s growth potential in the utility sector remains strong. Hargreaves Lansdown analyst Aarin Chiekrie noted that National Grid combines the traditional stability of a utility with significant growth opportunities, a rarity in the sector.
National Grid’s major shareholders include BlackRock, Capital Research Global, The Vanguard Group, Abu Dhabi Investment Authority, and Lazard Asset Management. The substantial rights issue is expected to fortify the company’s balance sheet and support its long-term investment strategy, offering a promising outlook for future growth and profitability.
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