Brit Energy scraps update ahead of loan extension
Date: 27-Sep-02
Country: UK
Author: Tom Bergin and Stuart Penson
"Because we are in discussions with the government about the long-term future of the company it is not appropriate to be putting out a pre-close statement this week," a British Energy spokeswoman said, referring to the practice of giving an update before closing its books for the six months to September 30.
The nation's biggest electricity generator was saved from bankruptcy earlier this month by an emergency state loan of 410 million pounds ($638 million) which is due to mature on Friday.
Investors had been waiting to see whether the government would this week renew its support for the company and continue talks on a long-term rescue plan or just let it go bankrupt.
A source close to the government told Reuters this week that a statement confirming a renewal of the loan facility until late November or December would be released this week, or Thursday at the latest.
The source said administration, which is similar to U.S. Chapter 11 bankruptcy protection, was still possible but that the extension gave the company more breathing space.
"Everything remains an option," the source said.
The company's shares rose this week on growing hopes administration was not imminent. The shares closed up 9.14 percent at 18.36 pence.
British Energy's bonds were unchanged at levels which implied the market sees a high risk of default. The 2003 bond was bid at 53 percent of face value, while the 2006 bond was bid at 50 percent of face value.
The company shocked the nation this month when it said it faced a cash crisis and pleaded for a state bailout only weeks after telling investors it was solvent. Plunging wholesale electricity prices and high fixed costs mean that it is selling power for less than it costs to generate it.
Possible long-term solutions to the company's plight include tax breaks, a revised relationship with state-owned parts of the nation's nuclear industry, sale of north American assets and a financial restructuring that could cut out shareholders altogether and leave other investors severely out of pocket.
The company claims it is hamstrung by state energy policy and does not get its fair share of tax breaks, but government officials and advisers believe poor management decisions are at least partly to blame for its predicament.
Environmentalists argue that British Energy's nuclear stations are not economically viable. They would like them to be shut and replaced by renewable energy providers.
Talks over British Energy's future are set to involve the highest levels of government, but government sources said the issue fell off the agenda in Cabinet on Monday as Prime Minister Tony Blair pressed his case for action against Iraq.
Earlier this week British Energy confirmed it would not be drawing down 350 million pounds ($543 million) in credit facilities due to expire in 2005. The company's decision that it was unable to guarantee repayment of future bank loans triggered its appeal to the government for funds on September 5.
Last week it cancelled a further 260 million pounds of undrawn bank facilities.
About 40 percent of British Energy's UK nuclear generation capacity was out of action this week as engineers worked on maintenance and repairs at various stations.
Environmental group Greenpeace called on the UK's nuclear watchdog to forbid British Energy from restarting its Heysham 2 plant in northwest England, currently down because of an electrical fault, until more is known about failed gas circulators at the company's Scottish Torness plant.
Heysham 2 is fitted with the same type of circulators as Torness.
But the Nuclear Safety Directorate, in a written response to Greenpeace, said failing circulators had negligible safety implications for nuclear power stations.
(Additional reporting by Andrew Callus, Janet McBride and F. Brinley Bruton).
