SSE Agrees Private Placement – No Shareholder Dilution

SSE (LON: SSE) shares have barely moved on the announcement of a private placement by the company. On the other hand, it’s also possible to think that the news of the placement has halted the rise in SSE shares that was going one during the close period before results are announced. As ever in markets, it’s possible to read things either way.

A certain rerating of SSE shares started when they gave their notification of closed period. As often happens, they gave some very brief pencil sketch of how they expected things to turn out. That absence of wind during the winter had indeed impacted upon their renewables production but that effect declined in the first quarter of this year. They think earnings per share will be in the 92 to 97 pence range, which is above their previous guidance of at least 90 pence.

So, that very brief information release before they say nowt in the lead up to the full results led to a decent enough rise in the share price, from 1,675 to 1,750 or so.

This then came to a halt with the announcement of the private placement – SSE shares are off 0.03% (so, it is a halt in the rise, not a fall in any useful sense). This halt in the rise is unlikely to be caused by that news, though for the terms look pretty good, in fact.

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One thing to note is that this is not an equity issue, rather, these are bonds. So, there’s no dilution of extant shareholders in raising this £350 million. It’s also true that we all know that interest rates are on the rise, so bringing in long-term and fixed-rate money now seems sensible enough. Further, bonds tend not to be widely traded – the average bond trades twice, once on issue and once on redemption – so even if the placement leads to some trade in the bonds it won’t be much. There won’t be masses more paper flooding the market that is.

As to what the money will be spent upon it’s to go into SSEN Transmission, to be spent on the upgrades to the transmission network required to deal with the increasing supply of renewables to it. This is an area that requires investment, it is also one that can be, if done right, profitable.

We might think that SSE should be worth much more given current sky-high energy prices. After all, the cost of producing wind-power hasn’t risen recently, while the price that can be received for it certainly has. Except, as SSE is telling us, this isn’t quite how it works, is it? For they themselves are telling us that they’ve been able to generate less than planned – which is, of course, one of the reasons why prices have risen so much.

The next major announcement from SSE is on May 25th when they will release financial results for the year ending 31 March. Price movements between now and then are likely to be dominated by what people think those results are going to be.