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RWE Raises EUR2.1B In Crucial Capital Increase

RWE AG (RWE.XE) said Tuesday it expects gross proceeds of around EUR2.1 billion from a capital increase it carried out in response to Germany's decision earlier this year to accelerate its planned exit from nuclear energy, hitting the company's earnings and cash flows.
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Τρι, 6 Δεκεμβρίου 2011 - 18:48
RWE AG (RWE.XE) said Tuesday it expects gross proceeds of around EUR2.1 billion from a capital increase it carried out in response to Germany 's decision earlier this year to accelerate its planned exit from nuclear energy, hitting the company's earnings and cash flows.

While the expected proceeds missed the company's target to raise up to EUR2.5 billion by issuing new and existing shares, RWE's capital increase was well received by investors.

The shares held up relatively well--trading considerably above the EUR26 subscription price--in a nervous market and despite an earlier warning by credit rating firm Standard & Poor's that euro-zone nations, including top-rated Germany and France , could lose their premier credit status if policy makers fail restore capital markets confidence.

At 1228 GMT, RWE shares traded down EUR2.94, or 9.7%, at EUR27.41, underperforming a broadly lower market. Since the beginning of the year the stock lost around 46% of its value.

The capital increase is part of a broader effort to reduce debt and remove pressure on its credit rating after the German nuclear energy policy reversal exacerbated an already tough market environment with weak power and gas prices. Other measures include plans to sell EUR11 billion worth in assets by the end of 2013.

RWE has also said it intends to step up efficiency improvement measures and plans to provide new savings targets in March. Recent press reports have speculated that the company could shed up to 8,000 jobs through the planned disposals and cost cuts.

Competitor E.ON has already announced plans to reduce its workforce by around 11,000 as it seeks to reduce operating costs in response to a gloomy business environment and to counter the impact from Germany 's accelerated nuclear exit.

WestLB analyst Peter Wirtz, who has an add recommendation on RWE's shares, said the capital increase removes pressure from the company's credit rating, adding that the possibility of an immediate downgrade of credit worthiness should now be eliminated.

However, analysts at brokerage Collins Stewart said in a note to clients that RWE now has to deliver on its plans to sell assets and reduce capital expenditure to ensure it can retain its credit ratings in the medium term.

The capital raising measure will still leave net debt in a ratio to earnings before interest, taxes, depreciation and amortization of around 3.5, according to Collins Stewart estimates.

"We still expect RWE to have to execute its proposed divestment program and capex reductions to ensure it's 'A' debt rating for the medium term," the analysts said.

Generally, a net debt-to-Ebitda ratio of 3.3 is considered commensurate for a single-A rating.

RWE said it will issue 52.3 million new shares and sell an additional 28.1 million treasury shares.

The subscription price for the transaction was at the lower end of the initial bookbuilding range of EUR26 to EUR27.50, which was later lowered to EUR26 to EUR26.50 a share, according to market participants.

The company also said that it intends to further step up savings efforts to make up for the slightly lower-than-anticipated proceeds from the capital increase.

Deutsche Bank AG (DB) and Goldman Sachs Group Inc. (GS) jointly coordinated the transaction, RWE said.
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