Equinor wants to protect its ownership stake – injects nine billion into Ørsted

Ørsted receives important support in the precarious capital raising: – Equinor is dependent on Ørsted ownership to achieve its renewable goals, says analyst.

In what has become a very precarious capital raising process for Ørsted, the second largest owner, Equinor, has now announced that the company will participate in the issue:

"Following dialogue with Ørsted, Equinor has decided to support the proposal, which will strengthen Ørsted's balance sheet in response to the challenges the industry is currently facing," Equinor writes in a stock exchange release on Monday morning.

Equinor owns just under ten percent of the shares in Ørsted, and will buy enough shares to maintain its ownership stake as Ørsted issues new shares to raise 60 billion Danish kroner.

In the announcement, Equinor writes that it will subscribe for shares equivalent to up to six billion Danish kroner, just over nine billion Norwegian kroner, subject to final terms. This will bring Equinor's total investment in the crisis-hit offshore wind company to up to 23 billion Danish kroner, around 36 billion Norwegian kroner.

Equinor's ownership stake has halved in value since the investment of NOK 26 billion was announced last fall.

"Had to be there"

Ørsted will hold a general meeting on Friday to obtain shareholder approval for the capital raising. It is already known that the Danish state would participate in the issue, representing its ownership interest of 50.1 percent of the shares in Ørsted.

The issue took a serious hit when the US government announced a halt order for Ørsted's Revolution Wind project off Rhode Island, just north of New York, on Saturday night. All offshore installations are already in place and 45 of 60 wind turbines are ready for operation, but President Donald Trump says no despite the fact that 80 percent of the development is complete.

As the second largest shareholder, Equinor was not involved as a guarantor when Ørsted first announced the issue in early August, and would not say anything about its intentions until the weekend. However, analysts covering the company were fairly confident that Equinor would take its share of the huge capital raise:

– By not joining, Equinor will indirectly admit that the renewable target, which was adopted at the general meeting, was a mistake. In that case, something must be done about the guidance on renewables or say that it will come back with new targets, Teodor Sveen-Nilsen told DN on Sunday.

On Monday morning, the Sparebank 1 Markets analyst said:

– This was as expected. Equinor had to participate in this issue. Equinor is dependent on Ørsted ownership to achieve the renewable targets. If Equinor had not participated, it would have had to reduce these targets. That could have made sense, but I don't see it as likely.

While the Ørsted share received a small price boost on Monday, with an increase of three percent when the Copenhagen Stock Exchange opened, there were only marginal price fluctuations in the Equinor share.

He is aware that Equinor has put itself in an unfortunate situation:

– My impression is that Equinor shareholders do not like Equinor participating in this issue. The vast majority dislike Equinor's involvement in Ørsted. As an investor, you can buy Ørsted – and decide for yourself how much you want to be invested in the company. You do not need Equinor to decide that, says Sveen-Nilsen, but at the same time adds that Ørsted has now become more attractive after the price drops:

– I have long believed that Equinor would maintain or increase its share. Now Equinor had the opportunity to buy relatively cheap renewable capacity. It is cheaper to invest in Ørsted than Empire Wind.

– Whether Equinor should have invested more than its share depends on your view of Equinor's renewable strategy. If you think it is too unambitious, you think Equinor should have invested more. The opposite is true if you don't think anything about the renewable strategy.

The big question now is what the subscription price in the issue will end up at. According to Sydbank analyst Jacob Pedersen, much will depend on any clarification regarding the American project.

– It is not easy to navigate such a process as long as the uncertainty surrounding Revolution Wind remains where it is. Ørsted has room to postpone for a month or two, if it feels it can get a better overview of the situation. A clarification regarding Revolution would definitely provide a tailwind for the issue, Pedersen said Sunday.

He also did not rule out the issue being postponed.

Going for "closer cooperation"

In the stock exchange announcement, Equinor is clear about Ørsted's challenges and writes, "the industry will see consolidation and new business models. Equinor's view is that closer industrial and strategic cooperation between Ørsted and Equinor has the potential to create value for all shareholders in both companies."

Already last weekend, Equinor was open to DN that the company had supported Ørsted after the stop order from the Trump administration:

– We are monitoring the situation closely, and we have offered Ørsted our experiences from the Empire Wind process, said Equinor press spokesperson Rikke Høistad Sjøberg.

She then referred to Equinor's similar experience, when Empire Wind was suddenly told to stop by Trump at Easter. After extensive lobbying, Equinor was able to restart Empire Wind at the end of May.