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Will Origin Energy be forced to raise capital?

Despite reassurances from long-serving CEO Grant King at Origin Energy (ASX: ORG) that the company can fund its share of the APLNG project without raising fresh capital, as The Australian Financial Review has reported on two separate occasions in the past week, the market is still speculating that it will.

Origin is facing challenges in its retail markets where regulatory decisions and higher wholesale prices are affecting profits and increasing expenses as the company battles to retain market share. At the same time the capital expenditure to complete the APLNG project is consuming much of the company’s spare cash and funding facilities.

Other companies to have recently turned to the markets to raise fresh capital include stock exchange operator ASX (ASX: ASX) and property developer and manager Stockland (ASX: SGP), who both used the proceeds to strengthen their balance sheets. Their timing was opportune given the recent equity market volatility which would likely make raising capital a more difficult task today.

Foolish takeaway

Given the long-term growth profile of Origin’s assets, a capital raising would not necessarily be a bad thing provided it is done on a pro-rata basis, which provides all shareholders with an opportunity to increase their holding without being diluted.

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Motley Fool contributor Tim McArthur owns a share in Origin Energy.

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