Drax to raise cash for biomass conversion

The North Yorkshire-based company plans to place 36.47 million shares worth 11p each and take on £100m in new debt and refinance existing credit.

Drax is converting from coal to biomass fuel as rising coal prices squeeze its profits. The Government is offering subsidies to raise the amount of energy generated from renewable sources to hit EU targets of 15 per cent by 2020.

Drax estimates the conversion will require a capital investment of between £650m and £700m.

The company said that Invesco Asset Management and Schroder Investment Management have already promised to take up allocations in the placing.

The new shares issued will represent up to 9.99 per cent of the new company.

Drax said that trading conditions since the beginning of July improved in all of its commodity markets except domestic coal where some suppliers are still facing challenges, but that its expectations for the full year are unchanged.

Shares in Drax tumbled more than 15 per cent in one day in late July when the Government announced smaller than expected subsidies for burning biomass with other fuels, making the group’s conversion plans less profitable.