Breakingviews - Orsted's big cash call jars with its fresh start
The capital raise comes on the back of a stretched balance sheet battered by inflation, supply-chain delays, and shifting subsidy policies that have upended the nascent U.S. offshore wind industry. These factors already led Orsted to scrap, opens new tab some U.S. projects and book hefty impairments, but as recently as April Errboe was still confident in his project funding. Now, a stop-work order by the wind-phobic administration of President Donald Trump in April to a separate Equinor (EQNR.OL), opens new tab scheme has left the Danish group concerned it wouldn't be able to finance the buildout of Sunrise Wind, even though the order was lifted in May.
That's because the funding hinged on Orsted selling stakes in the project to third parties – 'farm-downs', in the terminology – despite being only at an early stage of construction. The U.S. government's hostility and unpredictability implies less lucrative farm-downs, meaning Errboe has to shoulder the cost on his company's balance sheet. To preserve its investment-grade credit rating, that means raising 40 billion crowns for Sunrise Wind, plus an extra 20 billion crowns to cater for extra capital spending needs.
Errboe can't do much about Trump. Yet rivals like Iberdrola (IBE.MC), opens new tab and SSE (SSE.L), opens new tab tend to sell stakes and recycle capital later on, when projects are near completion or operational. In good times, Orsted's approach frees up capital early, fueling faster growth. But when buyers turn cautious and financial conditions tighten, the model leaves it scrambling for cash to keep the construction going. Throw in the fact that Errboe has cut forecasted return on capital employed and 2026 EBITDA, and investors have another unpleasant and stock-specific shock.
Given that the issue is fully underwritten by Morgan Stanley (MS.N), opens new tab and backed by the Danish state, which owns 50.1%, Orsted will get its cash. Errboe can point to the fact that only 20% of his offshore wind capacity under construction will emanate from the U.S. Hence when the hole is plugged he still sees scope for 13% group returns on capital employed from 2028.
Still, the scale of the capital needs relative to its now-$14 billion market cap is striking. Plenty of minority investors will think hard before playing ball - Equinor, which holds a 10% stake, merely said it would "assess the proposal". Errboe's task is to convince them that he isn't just buying time before the next shock.
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Reuters
6 hours ago
- Reuters
Orsted plunges as it seeks $9.4 billion to cope with Trump's hostility to wind power
COPENHAGEN, Aug 11 (Reuters) - Shares in Orsted ( opens new tab plunged to a record low on Monday as the wind farm developer asked shareholders for $9.4 billion to help fund a U.S. project, after potential partners were put off by U.S. President Donald Trump's hostility to wind power. The 60 billion crowns ($9.4 billion) rights issue is worth around half of the Danish company's market value as of Friday's close. Struggling in recent years with soaring inflation and logistical problems that sent costs soaring, the offshore wind industry faced a further setback when Trump suspended licensing on his first day back in office in January. "Orsted and our industry are in an extraordinary situation with the adverse market development in the U.S. on top of the past years' macroeconomic and supply chain challenges," said CEO Rasmus Errboe. Trump campaigned on a promise to end the offshore wind industry, saying it is too expensive and hurts whales and birds. Orsted said two-thirds of the new capital would be used to fund the construction of Sunrise Wind - one of its two remaining projects under development off the U.S. East Coast. Potential co-investors for the project pulled out after Trump's administration in April ordered Equinor ( opens new tab to halt the development of a neighbouring fully-permitted wind farm. The order, which sent shockwaves through the industry, was reversed the following month, however. "Following the stop work order on Equinor's Empire Wind project, the perceived risks of the U.S. offshore wind market among investors and banks increased significantly," Errboe said. Orsted depends on selling full or partial stakes in its offshore wind farms to finance new projects. Errboe, who replaced former CEO Mads Nipper earlier this year, has sought to cut costs and cancelled projects in the U.S. and Britain. The rest of the expected proceeds from the rights issue would strengthen Orsted's finances and help it develop the 8.1 gigawatts of offshore wind projects currently under construction by 2027, the company said. Orsted shares lost nearly one-third of their value to hit a record low. At 1327 GMT, they were down 31.2% at 212 crowns. "The U.S. offshore wind market was crippled after Trump took office. But things started going badly for Orsted before Trump," said Sydbank analyst Jakob Pedersen. Orsted has, in recent years, scrapped some U.S. projects and booked hefty impairments due to supply chain delays, inflation and shifting subsidy policies in the nascent U.S. offshore wind market. "The company is in really bad shape. A capital increase was the last resort. It was not just the right decision, it was the only option they had left in their toolbox," said Sydbank's Pedersen. Jefferies analysts said in a note that while the fundraising would help to de-risk the company's balance sheet, the near-term dilution for shareholders "seems substantial". The Danish state, which owns 50.1% of Orsted, agreed to subscribe to a similar portion of the share issue, thus retaining a majority stake. "Orsted is an extremely important company in the green transition, and there is also a security policy dimension where we need to be independent of energy from Russia," Denmark's Finance Minister Nicolai Wammen told broadcaster TV2. Right-wing Danish opposition lawmakers criticised the government's support for the rights issue, questioning why Danish taxpayers should help finance a U.S. project. A spokesperson for Equinor, which holds a 10% stake in Orsted, said it would assess Orsted's proposal. Shares not subscribed for by the existing shareholders or other investors would be fully underwritten by Morgan Stanley, Orsted said. Orsted also said it expects to raise more than 35 billion crowns from selling its European onshore wind business as well as from planned divestments of stakes in its Changhua 2 offshore wind farm in Taiwan and Hornsea 3 in Britain. ($1 = 6.3953 Danish crowns)
Reuters
7 hours ago
- Reuters
Breakingviews - Orsted's big cash call jars with its fresh start
LONDON, Aug 11 (Reuters Breakingviews) - Rasmus Errboe's fresh start has already been blown off course. The boss of $20 billion Orsted ( opens new tab, who took the helm in February, is asking shareholders for 60 billion Danish crowns ($9 billion) to cut debt and keep building Sunrise Wind, a troubled U.S. project. A 29% slump in the Danish offshore developer's share price reflects that its big problem under predecessor Mads Nipper – asserting that the worst was past only to then unveil a new nasty surprise – hasn't really gone away. The capital raise comes on the back of a stretched balance sheet battered by inflation, supply-chain delays, and shifting subsidy policies that have upended the nascent U.S. offshore wind industry. These factors already led Orsted to scrap, opens new tab some U.S. projects and book hefty impairments, but as recently as April Errboe was still confident in his project funding. Now, a stop-work order by the wind-phobic administration of President Donald Trump in April to a separate Equinor ( opens new tab scheme has left the Danish group concerned it wouldn't be able to finance the buildout of Sunrise Wind, even though the order was lifted in May. That's because the funding hinged on Orsted selling stakes in the project to third parties – 'farm-downs', in the terminology – despite being only at an early stage of construction. The U.S. government's hostility and unpredictability implies less lucrative farm-downs, meaning Errboe has to shoulder the cost on his company's balance sheet. To preserve its investment-grade credit rating, that means raising 40 billion crowns for Sunrise Wind, plus an extra 20 billion crowns to cater for extra capital spending needs. Errboe can't do much about Trump. Yet rivals like Iberdrola ( opens new tab and SSE (SSE.L), opens new tab tend to sell stakes and recycle capital later on, when projects are near completion or operational. In good times, Orsted's approach frees up capital early, fueling faster growth. But when buyers turn cautious and financial conditions tighten, the model leaves it scrambling for cash to keep the construction going. Throw in the fact that Errboe has cut forecasted return on capital employed and 2026 EBITDA, and investors have another unpleasant and stock-specific shock. Given that the issue is fully underwritten by Morgan Stanley (MS.N), opens new tab and backed by the Danish state, which owns 50.1%, Orsted will get its cash. Errboe can point to the fact that only 20% of his offshore wind capacity under construction will emanate from the U.S. Hence when the hole is plugged he still sees scope for 13% group returns on capital employed from 2028. Still, the scale of the capital needs relative to its now-$14 billion market cap is striking. Plenty of minority investors will think hard before playing ball - Equinor, which holds a 10% stake, merely said it would "assess the proposal". Errboe's task is to convince them that he isn't just buying time before the next shock. Follow Yawen Chen on Bluesky, opens new tab and LinkedIn, opens new tab.
The Guardian
9 hours ago
- The Guardian
Wind generator Ørsted's shares sink as it makes $9bn cash call
Europe's largest wind power company has blamed Donald Trump for derailing its business model, after it unveiled a $9bn (£6.7bn) fundraising and its market value plunged by almost a third. The share price for Denmark's Ørsted tumbled to an all-time low after it told investors on Monday that the 'extraordinary situation' facing the industry meant it would need to tap shareholders to cover the costs of its plans. It said 'recent material developments in the US' meant it was unable to raise the money required by selling a stake in its new project off the eastern seaboard of the US, as planned. The company behind some of the world's biggest offshore windfarms typically covers its costs by selling a stake in each project once work is under way. However, the president's hardline stance against offshore wind has slashed the values of its US projects. While the Biden administration was supportive of the burgeoning offshore wind sector, Trump sent shivers through the industry by ordering a review of offshore wind permitting and leasing on his first day back in the White House in January. The review dealt a blow to an industry still reeling from a surge in costs driven by supply chain problems following the pandemic, and fast-rising interest rates which have made building new projects far more expensive. Trump has a long-held dislike of offshore windfarms which dates back at least 14 years to a spat over North Sea wind turbines that were visible from one of his golf courses in Scotland. He has recently claimed that windfarms should not be allowed because they generate 'the worst form of energy, the most expensive form of energy' and also 'kill the birds'. These claims have been refuted by experts. Within months of Trump's return to power his administration issued a stop-work order to a project spearheaded by the Norwegian wind developer Equinor. The order was a shock to many industry commentators who had believed that projects that had already secured their approvals would be safe from the industry review. Ørsted is planning to complete the Sunrise Wind project off the coast of New York and the Revolution Wind project off Rhode Island. It said the plans to raise more than $9bn would strengthen its capital structure and provide 'financial robustness' while it moves ahead with global plans to build enough offshore windfarms to power more than 8m homes within the next two years. The fundraising will be backed by the Danish government, which owns half of Ørsted. But the plans have sparked concerns in the market, which caused its share price to slump to 220.5 kroner on Monday morning, below its 2016 flotation price of 235 kroner. Rasmus Errboe, chief executive, said: 'Ørsted and our industry are in an extraordinary situation with the adverse market development in the US on top of the past years' macroeconomic and supply chain challenges.' He added: 'The rights issue will reinforce our ability to realise the full value potential of our existing portfolio and capture future value-creating opportunities in offshore wind.'
