Even a giant capital increase will not clear Ørsted’s storm clouds
The Danish group has little choice but to pursue a rights issue given its Sunrise Wind project has run into a Trump-shaped obstacle
Capital increases among European utilities come in two distinct flavours. On the one hand, companies such as Iberdrola have raised equity to invest in attractive new growth opportunities. At the other end of the spectrum is Denmark’s Ørsted. It plans to raise $9.4bn of equity — equivalent to about two-thirds of its market value after Monday’s 30 per cent share price fall — to plug a leak in its financing model.
As unwelcome as this rights issue is, Ørsted has little choice but to pursue it. The group was hoping to sell a stake in its Sunrise Wind project off the New York coast to reduce its share of development capex and free up money to finance other projects. President Donald Trump’s aversion to wind energy has blown potential buyers off course. Given Sunrise Wind is a roughly DKr60bn project ($9.4bn), and developers typically commit to much of the investment upfront, walking away was also not an option.
Should everything now go according to plan, Ørsted should get some bang for its new bucks. All other things being equal, a higher-than-forecast equity stake in this large US project should deliver higher than expected earnings when the project starts producing electricity.
But the group’s new target for 2027 ebitda — of above DKr32bn — compares to consensus expectations that are already above DKr33bn on S&P Capital IQ numbers. While Sunrise Wind will only be operational for some of that year, and forecasts for the years beyond may yet rise, it is hard to escape the conclusion that post capital increase shareholders will be looking at much reduced earnings per share.
What’s more, it would take a brave investor to bet on the fact that this trouble-prone company will now face fair winds. While the US may be a particularly difficult spot for renewables developers, Ørsted’s business model is challenged more broadly. It is hard to bid for projects, do the groundwork and then sell them down to finance growth when capital is expensive, project development costs often show unhelpful bumps, and offshore wind assets are no longer the sought-after asset they once were.
In this context, Ørsted’s rights issue does have some logic. The group, which is trying to sell stakes in other wind projects, will at least have a stronger negotiating hand. And it can point to the fact that, over time, the much-buffeted offshore wind market will adjust to higher development costs, with governments offering more support to get projects off the ground. Yet Ørsted still has to get through a mountain of construction work before it can reap its rewards. Calmer waters are a way off yet.