AGL Energy
Recommendation
After raising $650m earlier this year through a notes issue, AGL Energy has returned to the market to raise another $900m via a 1-6 renounceable rights issue priced at $11.60. The latest capital raising means the company has raised a little over $1.5bn this year to finance the purchase of the Loy Yang A power plant in Victoria.
Record date | 29 May 12 |
Retail offer opens | 30 May 12 |
Entitlements commence trading on ASX | 05 Jun 12 |
Entitlements cease trading | 12 Jun 12 |
Retail offer closes (5pm Sydney time) | 19 Jun 12 |
The rights issue is priced generously; at a 22% discount to today’s price it’s a tempting proposition. But concerns about AGL expressed on 28 Feb 12 (Under Review – $13.80) and in AGL vs Origin Energy on 01 Mar 12 (Sell – $13.58) still stand; against its larger peer, this is an inferior business.
Shareholders now face three choices; to take up their rights, sell them on market or do nothing. If you’re considering taking up your entitlements, you’ll need to fill out the form posted to you (or downloaded from the AGL website) and make payment by 19 June. As a renounceable rights issue (see Your guide to retail share issues) you can also elect to sell your entitlement, currently trading on the ASX under the code AGKR, on market. If you do nothing, AGL will sell your entitlement for you and post you the cash, including any gains. We recommend selling your rights or doing nothing.
The purchase of the Loy Yang A plant comes cheap—AGL will pay just $448m for full control of the plant and its brown coal resources. But it will also assume plenty of debt, taking the value of the takeover to $3.1bn. Following the capital raising, AGL’s debt to equity ratio rises from 17% to over 50%. That’s manageable today but, with Loy Yang the recipient of more than $1.2bn in government subsidies, the future value of the asset is uncertain. AGL’s share price has risen 10% since 01 Mar 12, so the stock is even less enticing. SELL.