The energy giant Origin Energy Limited (ASX:ORG) launched a new capital initiative program for $4.7 billion to strengthen their balance sheet and maintain their investment grade credit rating.
As part of the capital raising process the company raised $2.5 billion through fully underwritten pro rata renounceable accelerated entitlement offer and implemented a cash preservation scheme of $2.2 billion. The company plans on reducing the dividends by 20 percent for FY2016 and FY2017 to save $240 million of cashflow, reducing the working capital requirements and capital expenditure by $1.0 billion followed by a sale of non-core assets worth $800 million by FY2017.
The entitlement offer is 4 for 7 fully underwritten pro rata renounceable shares at an offer price of $4.00 per share representing a 34.4% discount on the company's closing price yesterday and a 25% discount to the theoretical ex-rights price.
According to Origin's chairman Gordon Cairns "These initiatives will lower debt, strengthen the balance sheet and reduce reliance on distributions from Australia Pacific LNG. We believe this package of initiatives is prudent in light of current market conditions and strikes a reasonable balance in the best interest of all shareholders." The company has also narrowed its focus down to Energy Markets and Integrated Gas businesses. It will discontinue all its Geothermal and International Hydrocarbon exploration activities. Origin Managing Director Grant King said "Origin is implementing $6.9 billion in initiatives to strengthen its balance sheet and build resilience in a lower oil price environment."
Origin has presented a positive outlook for FY2016 and FY2017. According to the report, FY2016 is going to be a transformational year for Origin with the underlying EBITDA from its existing business excluding LNG to be $1.45-1.55 billion reflecting a strong Energy Markets business and lower earnings in Exploration and Production. The LNG underlying EBITDA is expected to be $110-230 million due to minimal revenue from their sale of gas to QGC and a disproportion in the LNG operating expense vs revenue. This could lead to a negative contribution to underlying NPAT from LNG in FY2016 of $170-$220 million. FY2017 has been reported to deliver earnings step change. The underlying EBITDA from the existing businesses is forecasted to be $1.9-$2.1 billion and LNG underlying EBITDA to be $1.2-$1.3 billion reflecting a strong growth in Energy Markets and Exploration and Production coupled with increased efficiency and cost savings.
Author: Ben Visser
Sep 30, 2015
Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.