National Grid strikes investors in the pocket

Despite an electric 12% increase in profits, the Grid is asking investors to stump up £3.2bn.

Last Updated: 31 Aug 2010

National Grid said today that it’s planning to raise £3.2bn from its existing shareholders via a rights issue, so it can afford to ramp up its investment in green energy (as well as securing its all-important credit rating). At the same time, the operator of the UK’s electricity and gas networks cheerily announced pre-tax profits (for the 12 months to 31 March) of £1.97bn, up 12% from last year's £1.77bn. Not bad going. What’s more, chief exec Steve Holliday said he expects further growth in the next 12 months. That'll be music to the ears of shareholders – as will the 8% hike in the dividend. But will it be enough to persuade them to part with their cash?

National Grid is doing its best to tempt them by offering a big discount to the current share price. Participating investors will get two shares for every five they already own, at a price tag of 335p each – roughly a 40% discount to the current share price of 578p.

So how is it planning to spend the proceeds? Well, the group said it needs the cash to fund a massive capital investment programme, allowing it to replace ageing assets and infrastructure and develop renewable energy sources. Without this kind of investment, the UK has no chance of hitting its emissions targets, it said.

By tapping shareholders for this extra cash – rather than by borrowing it from the banks or the bond markets – National Grid also hopes to retain its single-A credit rating. Holliday suggests this is quite some feat in a 'volatile economic environment’ where other companies are racking up mountains of debt. 

All told, National Grid apparently plans to spend £22bn in the UK over five years – well above the £14bn that it spent in the past five years. And with three-quarters of this vast sum to be spent here in Britain, it's a programme that could create some 5,500 jobs.

Holliday has a point; without a significant upgrade to our creaking energy infrastructure, our chances of hitting our emissions targets are slim, to say the least. But it's a hugely expensive business. This may not be the last time shareholders are tapped for cash in the coming years.

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National Grid strikes investors in the pocket
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