Ørsted’s shares downgraded to ‘near junk status’

Ørsted's shares have been downgraded to one notch above "junk" status by financial ratings agency S&P Ratings following an announcement by the company that it had halted plans to divest part of its Sunrise Wind project and proposed to issue new shares to continue its offshore wind construction projects.

On Aug. 11, Ørsted announced a proposed “rights issue” in which it planned to offer new shares to existing shareholders, with the Danish state as the majority owner committing to subscribe for its pro rata share, to raise gross proceeds of 60 billion Danish kroner (US$9.36 billion).

In the wake of these announcements, Ørsted's shares fell by 24%—nearly an all-time low for the company. In response, S&P cut Ørsted’s long-term issuer credit rating on Aug. 14 by one notch to BBB-, the lowest rating at which a stock is considered investment-grade.

S&P Ratings said the abandoned Sunrise Wind divestment, which Ørsted describes as a “farm-down,” is typically “an important pillar of Ørsted’s business and financial strategy [and] any delay directly weakens the company’s credit metrics.”

“We consider the delay in [the] farm-down[s] further evidence that Ørsted’s overall business environment has deteriorated,” S&P said. 

Ørsted now faces a period of “high uncertainty until it completes the capital raise in October,” S&P said. 

The company has faced a challenging time since it made an aggressive push into the US offshore wind market. Having struggled with supply-chain bottlenecks, higher interest rates and trouble getting tax credits, it launched a restructuring last year after deciding to pull out of two high-profile wind projects off the coast of New Jersey.

The plan included a comprehensive divestment program to free up funds for investments in its most financially attractive projects, ensure a stronger balance sheet and support a solid investment grade rating.

As part of those plans, Ørsted planned a partial sale of its Sunrise Wind project off the coast of New York that has previously faced supply chain and construction challenges that resulted in hundreds of millions of dollars in impairments.

The industry also faces headwinds from a Trump administration that is opposed to wind energy, with President Trump suspending new federal wind leases shortly after his inauguration. 

According to a recent Wall Street Journal report, Ørsted said that following the recent material adverse development in the US offshore wind market, it was not possible to complete the planned partial divestment and associated funding of Sunrise Wind on favorable terms. That means that Ørsted will have to fund the entire project construction itself, leading to a funding requirement of 40 billion kroner (US$6.2 billion).

Proceeds of the rights issue will be used to cover funding requirements from a full ownership of Sunrise Wind, strengthen the capital structure, provide flexibility in offshore partnerships and divestments, and boost resources to pursue opportunities in core offshore wind markets in Europe and select markets in the Asia-Pacific region.

An extraordinary general meeting will be called for Sept. 5 to approve the rights issue.

S&P is one of three major financial ratings agencies. The others, Moody’s and Fitch, still rate Ørsted two ratings above "junk" status, as reported by Bloomberg last week.