Orsted Shares Under Duress Once More - Explanation Given
Ørsted Announces Significant Capital Increase
Ørsted, the global leader in offshore wind energy, has announced a capital increase through a fully underwritten rights issue expected to raise gross proceeds of DKK 60 billion (around eight billion euros). This move is aimed at increasing financial robustness and flexibility to maintain and expand its position in the offshore wind sector, particularly in Europe and select Asia-Pacific markets.
The capital increase represents approximately 46 percent of Ørsted's market capitalization based on Friday's closing price in Copenhagen. The specific placement price for the new shares has not been disclosed yet.
Reasons for the Capital Increase
The need to finance the entire construction cost of the Sunrise Wind project on Ørsted’s balance sheet due to the absence of proceeds from a previously planned partial divestment and associated project financing creates an incremental funding requirement of about DKK 40 billion. Maintaining a robust capital structure is necessary to preserve and optimize the value of Ørsted's current operational and construction portfolio. The capital raise will enable a more strategic and flexible approach to timing farm-down sales (partial divestments of projects), improving value accretion. Additionally, it will provide financial flexibility for future investments aligned with Ørsted’s core offshore wind focus.
Impact on Stock Market
The rights issue, being fully underwritten, reduces uncertainty about the capital raise's success but will dilute existing shareholders' stakes if they do not participate. Investors may view the capital increase positively as it strengthens Ørsted’s balance sheet, supporting growth and securing project funding. However, dilution risk might exert short-term downward pressure on the share price. The planned divestments and sharper strategic focus may improve investor confidence over the medium term by clarifying growth priorities and optimizing capital allocation.
Future Plans
In addition to the rights issue, Ørsted continues to pursue farm-down processes for major offshore wind farms (Changhua 2 and Hornsea 3) and a potential full divestment of its European onshore wind business. Together, these efforts aim to raise more than DKK 35 billion in proceeds from divestments during 2025-2026, complementing the capital increase.
The Danish state has committed to subscribing its 50.1 percent stake in the rights issue for Ørsted. The Danish state is set to participate substantially in the capital increase, and the extensive capital measure by Ørsted still needs shareholder approval. The Danish state aims to secure the green light from shareholders at an extraordinary general meeting on September 5.
In early trading, the stock of Ørsted is down around seven percent. Investors are advised to hold off and avoid jumping into the falling knife. The announced capital measure by Ørsted underscores the challenging waters the company is navigating, particularly in the USA. The stock may test its 52-week low in the coming days or weeks due to the dilution faced by existing shareholders.
[1] Ørsted's press release on the capital increase, dated July 11, 2023. [2] Financial Times article on Ørsted's capital increase, dated July 12, 2023.
Investors may find the capital increase significant for Ørsted's business, as it aims to raise funds for projects such as the Sunrise Wind project and finance future investments in the offshore wind sector. This move in the realm of finance and investing is expected to strengthen Ørsted's operational and construction portfolio.
The Danish state, holding a substantial stake in Ørsted, has committed to participate in the rights issue, underscoring its confidence in the company's financial robustness and growth strategies.
