The offshore wind farm developer plunged the most on record as investors digested a planned rights issue that’s effectively a handout by the Danish government. The state plans to buy just above half of the securities.
The offshore wind pioneer was briefly more valuable than British oil major BP Plc at the height of the green investing boom just a few years ago. After a series of writedowns, cancellations of three major projects, the replacement of its top executives and two turnaround plans, the company announced the biggest rights issue for a European energy company in more than 15 years. It aims to raise 60 billion Danish kroner ($9.3 billion).
It’s the latest example in a years-long effort by the company to convince investors that it has its finances under control after soaring costs and rising interest rates upended its business model. It first announced impairments on its US projects in 2023, the start of a series of bad news that it assured investors each time would be contained. On top of that, there’s the impact of US President Donald Trump and his dislike for wind turbines that’s creating negative sentiment.
So far, investors appear unconvinced that this is a buying opportunity. While the Danish government has agreed to purchase shares, it’s unclear what appetite other existing investors will have. And there’s not yet a fixed price for the underwritten shares, the company’s Chief Financial Officer Trond Westlie said Monday.
“The analyst call did little to provide incremental comfort around the risk-reward skew,”Ahmed Farman, analyst at Jefferies International Ltd., said in a note. “We see execution risks on aspects of the new plan, as well as limited medium-term growth prospects.”
Shares in the company fell as much as 32% on Monday, revealing skepticism that the capital raise will be enough to fix the company for good and return it to a pathway of predictability, profitability and growth.
Orsted said on Monday that financing costs for one site – Sunrise Wind, off the coast of New York’s Montauk Point – had climbed significantly due to uncertainty for the sector created by Trump. The company halted the process for a partial sale on Monday saying that full ownership of the project was one of the key reasons it needs capital.
The company typically funds growth by selling stakes in wind farms that are close to completion. The impact of canceling the stake sale in Sunrise was estimated at 40 billion Danish kroner, a sum that appears high, according to Deepa Venkateswaran, analyst at Bernstein.
This leaves open the possibility that the figure could be masking impacts on other projects like a wind farm sale in the UK or further political risk in the US, Venkateswaran said in a note.
“We therefore wonder if there are other risks that the company is being less open about,” she said.
Orsted management cited the move by the Trump administration to halt an already-permitted offshore wind farm that was being developed by Norway’s Equinor ASA, as a tipping point. It was an unprecedented move that underscored the risks of investing in offshore wind in the US while President Trump is in office. While the decision was ultimately reversed, it derailed plans Orsted was carrying out to finance and sell a stake in its Sunrise Wind farm.
Equinor is the second-largest shareholder in Orsted and the value of its stake has already dropped by over $1 billion since the deal was announced last year.
“The perceived risks of the US offshore wind market among investors and banks increased significantly,” Orsted’s Chief Executive Officer Rasmus Errboe said on a call with analysts. “Investors involved in the equity process substantially increased their required risk protections and return requirements and the banks involved on project financing ultimately were not able to continue the process under current market conditions without material risk protections.”
Ultimately the share sale will be a test of Orsted’s continued bet on offshore wind. The company built its first wind farm at sea off the coast of Denmark more than 30 years ago and has been instrumental in the sector’s growth from niche to one of Europe’s most important sources of new renewable power generation.
“Despite the headwinds that offshore wind has an industry has faced in recent years, we continue to see a very strong outlook for the technology, particularly in Europe where electricity demand is projected to more than double by 2050,” Errboe said. “We remain 100% committed to the continued construction of our program.”
Many of Orsted’s biggest competitors in offshore wind have refocused on other parts of their businesses. Iberdrola SA and SSE Plc are ramping up spending on electric grids. Meanwhile oil majors Shell Plc and BP Plc have pulled back from the sector to focus on the oil and gas businesses that drive their profits.
But Orsted doesn’t have much else besides offshore wind. It announced plans to sell its European onshore wind business Monday and while it also has some biomass plants in Denmark and an onshore renewables business in the US, those are insignificant compared to offshore wind, which makes up the vast majority of its profit and investments.
And it’s not clear how steady the outlook for offshore wind will remain in Europe. Rising costs have led to a series of failed auctions, most recently in Germany. The response from industry has been to urge governments to provide subsidies that guarantee wind farm owners fixed prices for power. And with high energy prices still stinging Europe’s economy, government appetite to pay up may shrink.
–With assistance from Eamon Akil Farhat.
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