National Grid to sell Energis stake

NATIONAL Grid is unlikely to ride to the rescue of ailing spin-off Energis by underwriting an emergency rights issue, effectively putting its one-third stake in the telecoms carrier up for sale.

The utilities group said that its existing strategy of reducing its stake in the firm it floated in 1997 at 220p was unchanged by Thursday's devastating profit warning. 'Our medium and long-term strategy to reduce our stake in Energis remains in place,' said a National Grid spokesman.

Energis chief executive David Wickham told analysts that he would be talking to his National Grid counterpart Roger Urwin about funding options for the group. National Grid's stake in Energis is currently valued on its books at £400m.

After a further 22% slide in Energis shares today, the group's value has fallen to £313m, leaving National Grid with a potential hefty write-down against the value of the Energis stake. A FTSE 100 stock, National Grid is valued at £6.7bn. National Grid shares moved down 10 3/4p to 442p, with Goldman Sachs reducing its fair value for the shares to 455p from 470p. Analysts estimate a 10p movement in Energis shares implies a 3.8p movement in National Grid's stock. Two National Grid executives, Stephen Box and Edward Astle, are nonexecutives on the Energis board.

Energis on Thursday said it would miss its financial targets this year and was in danger of breaching banking covenants on its £725m banking facilities.

The group also has bonds in issue, taking its net debt to more than £1bn. Energis shares today dipped 5p to 18p.

Freeserve, one of Energis' largest clients, has served notice to terminate its contract with Energis when it expires next year.

ING Barings said it thought National Grid would be unwilling to reverse its long-standing policy to decrease its holding in Energis and directly support a refinancing package. 'National Grid's exposure is limited to its equity holding, and we consider it unlikely that the group would inject more cash into Energis,' it said.

Energis' primary bankers Dresdner, Bank of America and Barclays Capital, which helped lead an extension of bank funding only 10 weeks ago, are understood to have held talks already with the company about rescheduling the debt.

Energis bonds were also hammered today as ratings agencies Moody's and Standard & Poor's put the issue on review for a possible downgrade. Energis' 2010 bond was at 61% of trade value today, down from 68% Thursday, and from 84% before the profits warning.