A report by Credit Suisse analysts suggests Origin Energy might be better demerging its gas and electricity markets but if it were to do so it would probably need to raise around $4 billion in extra capital. The estimate is based on how the ratings agencies would be expected to treat the stand alone entities.
Any demerger proposal would be complicated by the fact that Origin has hybrid securities with a first call date in December 2016. Investors anticipate that the company will redeem the hybrids on this date and the company has said as much when it raised $2.5 billion of capital in October 2015. But investors have had doubts with revenues in the oil and gas sector falling and commodity prices trading at multi-year lows in recent times. The hybrids have a face value of $100 per security but have traded below $90 this year as investors fretted about whether the company would redeem the hybrids or not.
More recently the Origin hybrids have been traded close to their face value as the expectation increases that they will be redeemed. Speculation about a demerger would complicate matters and may increase uncertainty about whether hybrids would be redeemed. This uncertainty is likely to manifest itself in volatile pricing between now and December this year.