U.K. bails out British Energy
Paul Waldie
00:00 GMT-04:00 Tuesday, September 10, 2002
The British government gave British Energy PLC £410-million ($998-million) in emergency funding yesterday to help the troubled utility meet its immediate financial needs, which include guarantees required by its Canadian subsidiary.
British Energy said the loan facility expires on Sept. 27 and it will begin discussions with the government on a long-term restructuring plan. Those negotiations could take six months and if they fail, the company said it will face insolvency.
British Energy's shares resumed trading on the London Stock Exchange yesterday after being suspended since Thursday when the company first disclosed the scope of its financial problems. The share price sank 65 per cent yesterday to close at 28 pence.
Analysts said the three-week financing buys the company time but that its problems are far from over.
"We believe the risk of insolvency remains significant," Andrew Wright an analyst at UBS Warburg in London, said in a report yesterday. He added that there is "a 25-per-cent chance of the shares being worthless against 64-per-cent chance of some upside."
The government financing should help Ontario's Bruce Power LP, which is 82.4 per cent owned by British Energy, reassure Canadian nuclear regulators about its viability.
The Canadian Nuclear Safety Commission (CNSC) has asked Bruce Power to provide assurances that it still has access to $222-million in emergency "shutdown money." Bruce Power operates eight nuclear reactors in Ontario.
In documents filed with the CNSC on Aug. 23, Bruce Power said the guarantee, which is backed by British Energy, is in place. However, on Aug. 29, the CNSC asked for further assurances given British Energy's financial troubles. The CNSC wanted a reply by Sept. 10.
Yesterday, Bruce Power spokesman Steve Cannon said the company has responded but he declined to provide details. "Discussions have been ongoing between us and the CNSC," he said.
Michel Cléroux, a spokesman for the CNSC, confirmed Bruce Power's reply but also declined to provide details. "They are making a number of points and we are reviewing their response," Mr. Cléroux said yesterday. "It's an ongoing, evolving matter."
He added that "there is no urgency at present. Bruce Power is operating safely."
Bruce Power chief executive officer Duncan Hawthorne will appear before the CNSC this week and is expected to be asked about the guarantee. The hearing is a regularly scheduled review of Bruce Power's operating licence but it has taken on new significance given British Energy's troubles.
The British government funding will also help ease concerns about contracts Bruce Power has signed with companies for about 65 per cent of the power it produces. The contracts can be terminated if British Energy's credit rating falls below investment grade, according to the utility's securities filings. Last week, British Energy was downgraded to junk status by several ratings agencies.
British Energy said it will use part of the government funding to shore up its collateral.
Bruce Power is one of British Energy's most profitable divisions. It is valued at $1.64-billion by Mr. Wright of UBS Warburg, more than any other subsidiary.
Any restructuring of British Energy could affect Ontario Power Generation, or OPG, a provincial agency that owns all of Ontario's reactors. OPG leased the Bruce plants to British Energy last year and the utility still owes OPG $225-million plus interest at 10.5 per cent.
Half of that amount is due in February, 2005, with the remainder in February, 2007
Some analysts believe British Energy may try to refinance the loan. |
