Energy share proceeds fall short

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The Independent Online
The privatisation of British Energy is only set to raise around pounds 1.5bn, after institutional investors were deterred from increasing their bids by worries over electricity prices and the latest shutdown of two of the company's eight reactors for urgent safety repairs.

When the international book-building offer closes tonight, the shares are expected to be priced at below 230p, compared with the 180-280p range set by the Government and its advisers, BZW. This means that proceeds from the flotation may fall as much as pounds 600m short of the Government's original forecasts.

The public offer closed on Wednesday two-and-a-half times subscribed with 610,000 applications for 440 million shares, compared with the 183 million initially set aside for private investors. As a result, the allocation to the public offer will rise from 30 per cent to around 50 per cent, including shares that investors can apply for in the retail tender.

The Government had hoped that the level of oversubscription in the public offer and the consequent clawing back of shares from the international offer would produce a late rush of bids from institutions anxious to ensure they were allocated sufficient stock. But this has failed to materialise. The Government's advisers said the book had continued to build from day one of the international offer, when it was fully covered at 200p-230p, but the price would not go any higher than that.

Amir Eilon of BZW rejected suggestions that the institutional response had been poor, saying: "We have had interest from high-quality institutions around the world."

Although the shutdowns of the Hinkley Point B reactor in Somerset and Hunterston B in Ayrshire for checks on faulty welds were not announced until after the public offer had closed at Wednesday lunchtime, the Government's advisers said there had not been a deluge of protest calls. "We were expecting a certain amount of response from private investors, but it has not materialised."

Together with the 5p discount on the first instalment and the two dividends being paid in the first year, private investors are looking at a 22 per cent yield on the partly-paid shares.

Even with the extra allotment of shares to the public offer there will need to be a scaling down of allocations because of the level of demand. The shares are due to start trading on Monday.

The two stations are expected to be closed for a fortnight, resulting in a pounds 6m loss to British Energy. Both had already been running at half capacity because of repairs to the other reactors.

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