Centrica unveils surprise share sale to protect credit rating, dividend

* Centrica (LSE: CNA.L - news) to raise around 750 million pounds

* Shares (Berlin: DI6.BE - news) down 9.6 pct at 0918 GMT

* To use proceeds to lower debt, fund acquisitions

* Centrica says cutting debt will protect credit metrics (Updates throughout)

By Karolin Schaps

LONDON, May 5 (Reuters) - Britain's largest energy supplier Centrica announced a surprise share sale on Thursday to pay off debt, showing its determination to protect its credit rating after being hit hard by weak energy prices and tough retail market competition.

The British Gas owner said it intended to raise around 750 million pounds ($1.1 billion) by placing shares equivalent to roughly 7 percent of its issued share capital in order to reduce its debt pile and to pay for two acquisitions.

Its shares were down 9.6 percent at 0918 GMT, by far the biggest loser on London's bluechip FTSE 100 index.

The utility is in the middle of a strategic turnaround spearheaded by former BP executive Iain Conn who wants to shift the utility's focus away from oil and gas production to energy supply and trading.

"The credit metrics required for the current strong investment grade credit ratings are under pressure," Centrica (Amsterdam: CC8.AS - news) said in a statement.

"A 7 percent placing therefore allows ... for lowering of net debt, reducing pressure on credit metrics and the group's targeted strong investment grade credit ratings, in what remains an uncertain environment," it said.

Credit ratings agency Moody's placed Centrica's Baa1 rating on 'negative watch' in February, one step before an actual downgrade that would make it more difficult for the company to raise funds.

The utility had a net debt mountain of 4.4 billion pounds at the end of the first quarter and announced a 170-million pound acquisition of Danish energy management company Neas Energy two weeks ago.

A second acquisition in the service sector worth around 150 million pounds is close to completion, Centrica said.

"Raising equity is an expensive way of paying down debt," said analysts at Jefferies, who rate Centrica's stock as a buy.

An alternative way to improve cashflow would have been another dividend cut, a move that would have likely angered important investors.

Centrica trimmed shareholder payouts by 21 percent last year just one month after Conn's tenure started.

The utility has also tried to raise cash from upstream disposals, putting its Canadian business and assets in Trinidad and Tobago up for sale last year.

With (Other OTC: WWTH - news) energy prices remaining weak, Centrica is unlikely to have received appropriate bids for these assets, analysts said.

Many utilities across the European continent have been hammered by weak energy prices and find themselves at a crossroads requiring a new business strategy.

"I think there will be a number of European utilities that will also have to face this judgment call of do we accept a rating downgrade or do we attempt to support the balance sheet," said Ashley Thomas, utilities analyst at Societe Generale (Swiss: 519928.SW - news) . ($1 = 0.6895 pounds) (Reporting by Karolin Schaps; Additional reporting by Rahul B in Bengaluru; editing by Adrian Croft)