British Energy rebels offer £800m to scupper shake-up

Rebel shareholders of nuclear generator British Energy have offered to buy out its £800m of debt, in effect cancelling its financial restructuring.

They have been holding secret talks with the European Commission aimed at putting together an alternative rescue plan for the company, which was saved from bankruptcy by the Government two years ago.

The EC is currently examining the existing government-backed restructuring, which would leave shareholders with just 2.5 per cent of the equity. The EC is expected to give its approval within weeks, unless the rebel shareholders can persuade it to back their own plan.

The hedge fund Polygon, which is leading the revolt, believes British Energy is worth around £1.5bn. But the company has a current stock market value of only £140m because of the proposed restructuring, which favours bondholders over shareholders. British Energy bonds have been trading well above par, at around £1.70 per pound.

Polygon says the restructuring should be changed to take into account higher electricity prices, which should boost its stock market value.

Under the proposals suggested to EC officials at the end of last week, the rebel shareholders - Polygon, Brandes and Invesco, who together own 22 per cent of the company - would arrange up to £800m in bridging finance to buy out bondholders holding around £400m of debt at face value. The shareholders would also repay the rest of the bank loans and debt. In return, the shareholders would receive new shares issued in the company.

Polygon argues that it can secure a better deal for UK taxpayers by cutting the amount the Government has to contribute to its long-term decommissioning liabilities. British Energy argues that without the proposed restructuring, the company would have gone into administration and that terms are binding.

On Friday afternoon, Polygon and Brandes, who together hold 12.5 per cent of British Energy's shares, also notified the company in writing that they are seeking an extraordinary general meeting. Under listing rules, a company must agree to hold a meeting if shareholders representing more than 10 per cent of its shares demand it.

British Energy has until the last week of October to hold the meeting. Polygon wants shareholders to be given the opportunity to vote on the government-backed restructuring.

If shareholders vote against the restructuring but the company, as it has indicated, goes ahead anyway, Polygon is threatening legal action. It would claim that British Energy's directors had breached their fiduciary duty to look after the interests of shareholders.