Shares of natural gas utility South Jersey Industries (SJI 0.29%) fell sharply in morning trading on March 17, losing a little more than 16%. The most obvious reason for the negative mood here was a news release posted after the market closed on March 16.
South Jersey Industries plans to sell $225 million worth of shares of its common stock and 6 million equity units, which, according to the company, is an "aggregate stated amount of $300 million of Equity Units." The underwriters have the option to buy an additional $33.75 million worth of shares and 900,000 additional equity units. The equity units have a stated amount of $50 and "will initially consist of a contract to purchase shares of Common Stock and a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of the Company's 2021 Series B remarketable junior subordinated notes due 2029."
The cash generated from these issuances will be used to pay down debt and to support capital spending plans in its utility operations, among other things. That said, the issuance of shares dilutes current shareholders and investors generally don't like that. Which is likely a key part of the reason for South Jersey Industries' stock decline this morning.
Although investors have taken a downbeat view of the capital market's activity here, South Jersey Industries won't provide a more comprehensive update on its 2021 expectations until May when it holds its investor day. Conservative long-term investors should probably wait to hear the utility's plans before making any material decisions here.