Energy sale likely to raise only pounds 1.5bn

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The sale of the nuclear generator British Energy is only expected to raise about pounds 1.5bn it emerged yesterday as the Government unveiled the price range for the controversial flotation and the discount to which private investors will be entitled.

The sum is equivalent to just half the cost of building the Sizewell B reactor in Suffolk - one of eight nuclear plants involved in the sell- off.

The sharp scaling back in the level of likely proceeds also means that the sale will not raise enough to cover the liabilities of the ageing Magnox stations being left in public ownership.

Ian Lang, President of the Board of Trade, announced that next month's flotation is expected to value British Energy at between pounds 1.26bn and pounds 1.96bn. Even with the extra pounds 700m of debt being left in the company, the proceeds could fall up to pounds 800m below the orginal estimates made by BZW, the Government's advisers on the sale.

John Battle, Labour's energy spokesman, immediately attacked the sell-off saying: "Taxpayers are being short-changed on a massive scale. This is a desperate dash for cash to raise funds for election tax cuts but the real danger is that we will be left to pick up the tab for years to come."

Mr Lang, however, defended the sale arrangements saying: "The taxpayer will get a good deal from this flotation and nuclear energy will benefit from being in the private sector."

He also rejected suggestions that the unprecedently wide price range announced by the Government reflected worries about the nuclear industry on the part of the investment community.

The price range implies a value for the fully paid shares of between 180p and 280p - putting them on a yield of 6.1 per cent to 9.5 per cent. Private investors will pay a first instalment of 100p - a 5p discount to the price for institutional investors - producing a saving of pounds 15 on the minimum investment of 300 shares.

However, the total return on the partly paid shares to private investors will be 22 per cent because two dividends are being paid out before the second instalment is due. The net dividend payable between now and next July will be 13.7p.

A total of 1.7 million investors have registered with share shops for the sale. On the basis of past privatisations this suggests the public offer will be at least twice subscribed - triggering clawback of shares set aside for institutions.

Tim Eggar, the Energy Minister, said that the initial response from overseas investors had been "very encouraging". However, the level of institutional demand will not be known until the international bookbuilding among UK and overseas institutions which will set the price begins a week today. Advisers believe the shares are likely to trade on a yield of 8.5-9 per cent suggesting a market capitalisation of pounds 1.4bn to pounds 1.5bn.

The public offer closes on 10 July and dealings are due to commence on Monday 15 July.

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