'Orsted is stuck in a nightmare – and it could have played things differently'

Orsted is stuck in a nightmare partly of its own creation, say analysts who argue the offshore wind giant had other options than the rights issue that crashed its share price this week, and warn that investors are now finding its “excuses” difficult to swallow.

“It’s a nightmare for Orsted at the moment,” said Kristian Ascanius Jacobsen, managing director at wind power consultancy Green Ducklings. “It just seems like a never-ending downward spiral that they are in.”

When it comes to blaming challenging market conditions, Jacobsen said that “you can play these cards a number of times” but Orsted has now “basically pulled all levers that could be pulled in terms of finding excuses and alleviating pressure”.

“Investors are finding it increasingly difficult to trust the excuses being presented by management.”

Errboe will struggle to avoid blame for the bad positions Orsted keeps finding itself in, said Jacobsen, given he has been in senior positions at the company for well over a decade. Nipper, he added, has already "paid the price".

Orsted put 'eggs in basket' that Trump is set on smashing

Orsted has suffered as it “put a lot of eggs in one basket at the wrong time,” said John MacAskill, group growth director at engineering consultancy ABL Group. That basket was of course the US.

The offshore wind market generally has suffered from rising costs in the last few years. MacAskill noted that capital requirements for US projects are particularly high and Orsted found itself “quite overextended.”

“They were making a big strategic play,” he said. “So they were exposed quite a bit.”

“I could imagine that you could see corporate slides from X number of years ago that showed that that was a really good play,” he said. “When America wants to do something, it goes big. I thought that was going to be a massive market. It's very easy to look back and second-guess things.”

Other developers may have thought that Orsted’s US push was “actually a good play but just maybe didn't have the wherewithal to actually repeat what Orsted were doing,” he said.

“Either way, they were a bit more diversified – by accident or by strategy.”

Recent events in the US are a “salutary lesson” that political turbulence is not “something from yesterday,” he said. “You can't assume that we've permanently won the argument. It's a cold shower to remind ourselves about political risk.”

Did Orsted pull the wrong levers at the wrong time?

Then, in May, he decided to pull the plug on the Contract for Difference Orsted had won for its 2.4GW Hornsea 4 project in the UK North Sea less than a year ago, citing supply chain costs, rising interest rates and Orsted’s updated strategy.

Jacobsen noted that the “official narrative” of Orsted’s decision to pull the rug on Hornsea 4 was that the project was a victim of broader economic and supply chain challenges the sector is facing.

In his firm’s analysis, however, “we could just see that the only sound argument for making that decision was essentially to derisk and improve the financial position and in that protect the credit rating of the company.”

With “little room to manoeuvre” on the US projects that are already under construction, Jacobsen said that Orsted chose to halt Hornsea 4 rather than deciding at that stage to seek a capital raise, as it has done now.

But Orsted could have played things differently, he said. One option would have been to make shareholders swallow a “hard pill” at the start of the year with a capitalisation of the company.

Another could have been to more aggressively try and divest stakes in Hornsea 3 and 4 to generate capital, even if the returns were not what they would have otherwise wanted.

The 3GW Hornsea 3 project, with a €10.3bn ($12bn) Capex, would have made the biggest impact, he said.

“By pulling the lever on Hornsea 4, I think you just have to raise the question, have they put themselves in a position where they are now without construction pipeline, meaning they have a lot of employees doing very little for a couple of years.”

That will affect the “company and the credibility of the company. And at the same time, they didn't really fix the issue.”

“It just seems like they made like half a decision and it was basically hoping that the situation at Sunrise would improve or at least not deteriorate.”

‘Orsted should have addressed issues head on earlier’

Jacob Pedersen, head of equity research at Sydbank, said he is “very surprised” the rights issue has come now.

“Orsted is a company that has disappointed for the past two years with financials and results that have degenerated. At the same time, they've been frank in no rights issue [being] needed. And then out of the blue, we have a rights issue. So, of course, this is a huge disappointment to investors.”

“No Danish company has ever done a rights issue of this magnitude,” he added.

A rights issue back in February – either this year or last – “would have made much more sense,” he said.

From an investor point of view, this would have “addressed the problem head on to begin with” and Orsted would probably have had a “smoother ride from there.”

The rights issue now is an “extremely high price to pay for existing shareholders because of the lack of a buyer for half of Sunrise Wind.”

It is “very easy” to say now that they should have carried out a rights issue last year, acknowledged Pedersen. “That would have been the sensible solution. But they couldn't have known in February of 2024 about Trump, of course.”

“It has been an almost impossible political environment to manoeuvre in for Orsted. You just have to acknowledge that.”

Did Empire Wind order seal fate of Sunrise and Orsted?

Trump may have eventually backed down on this following a high-powered lobbying campaign, including by Equinor’s owner, the Norwegian government, but it has rattled the industry.

Was this the final nail in the coffin for Orsted finding a buyer for a stake in its Sunrise project?

Errboe, referring to the stop work order, cited the “extraordinary situation with the adverse market development in the US” as precipitating the rights issue. Lene Skole, chair of Orsted’s board, also cited the “unprecedented regulatory development”.

However, for Jacobsen, “that ship” of selling off a Sunrise stake “sailed many, many moons before the stop work order at Empire Wind.”

“I simply don't think there was any buyer willing to entertain the idea of stepping into Sunrise at that moment in time,” he said. “The US market at that point was just completely on ice and continues to be on ice for investors at the moment.”

It’s also important to stress that a lot of projects in US and European markets are for sale at the moment, not just in Orsted’s portfolio, he said. “Lots of developers are looking to bring on board financial partners.”

“There is a lot of capacity for sale in the market. The issue is that there are very few buyers.”

“On a positive note,” he said that Orsted’s rights issue “will improve their long-term position and stabilise the credit concerns.”

“Now the hard work starts to regain investor confidence.”