Shares in Australia’s largest electricity retailer, Origin Energy, have plunged to their lowest level since early 2008, amid a profit downgrade and debt worries.
However, Origin chief executive Grant King defended the company’s financial position and rejected the prospect of a share-diluting capital raising.
At 1550 AEDT the company’s shares were down 59.5 cents, or 5.38 per cent, at $10.45.5, after earlier sinking to an intra-day low of $10.15.
The fall represent a loss in market capitalisation of $650.7 million for the company, among the top 20 on the ASX.
Origin said on Thursday that regulatory and pricing decisions would wipe up to 10 per cent from its underlying profit this financial year.
The company is being hit by weakening demand in electricity use at a time when regulators in some states are cracking down on rising prices.
Origin says the inability to raise prices means it cannot recover $40 million it has lost through an increase in the cost of the Small-scale Technology Certificates, which must be purchased to meet Renewable Energy Targets.
At June 30, Origin reported about $5.9 billion in debt, and was carrying another $1.3 billion in other liability and derivatives exposures.
It must also provide $A3.6 billion to the $US23 billion ($A22.2 billion) Australia Pacific LNG project of which it is a 37.5 stakeholder.
Origin wants to sell down that stake but the market believes it may be forced issue equity instead.
“Origin has sufficient funds to meet its share of Australia Pacific (AP) LNG capital expenditure to 2015 and support the ongoing needs of Origin’s business; therefore there is no need to raise further capital to meet any commitments currently in place,” Mr King said in a statement on Friday, referring to $4.2 billion in cash and undrawn facilities.
City Index chief market analyst Peter Esho said Origin faced higher funding costs if it tried to raise more debt and was facing a possible credit downgrade by Standard & Poor’s.
“APLNG looks good, it has got nice prospects. But if there’s cost blowouts, if the gas price collapses … there’s a lot of ifs while debt is what it is,” he told AAP.
“When the underlying bread and butter of the business starts to hit earnings growth pressures, which is what came out yesterday, it just further compounds the unease around that debt situation.”
Morningstar equities analyst Gareth James said he did not think the company would raise equity and that any rating downgrade to BBB from BBB+ was not a disaster.
“It’s not the end of the world, they are a good company, well run with good growth options with APLNG and we remain bullish on the stock,” he told AAP.
APLNG, which includes global partners ConocoPhillips and China Petrochemical Corp is being supplied by coal seam gas, and is due to come into production in mid-2015.
