British Energy rescue in jeopardy

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The Independent Online

British Energy's creditors are threatening to derail the government-backed rescue of the stricken nuclear generator in a row with the company's executives.

BE has just five weeks to strike a deal with its creditors or face the prospect of the Department of Trade and Industry withdrawing support for the £4bn-plus bail-out. But negotiations with a group of bondholders, which are owed around half of the company's outstanding £1.3bn debts, have reached a stalemate. Under the rescue plan for BE, the Government has agreed to take on the company's £3bn worth of nuclear liabilities. Banks and bondholders will be given new BE bonds and will emerge as the majority shareholders in the company.

However, the row centres on BE's existing shareholders, which have seen the value of their investments fall 95 per cent since the company approached the Government for help last September.

BE, which is chaired by the former merchant banker Adrian Montague, wants to give existing shareholders around 5 per cent of the equity in the business after restructuring. However, the bondholders believe BE should follow the lead set by recent corporate restructures and leave shareholders virtually empty-handed.

One source involved in the negotiations said: "Marconi's shareholders got 0.5 per cent; NTL's got virtually nothing; and Telewest's shareholders will get 1.5 per cent. For BE we are pressing for an NTL-type deal." Asked what the bondholders would do if BE refused to budge, the source said: "Forcing it to de-list or go into administration is not out of the question."

Neither side would comment openly on the negotiations. However, it is understood that BE originally planned to offer its existing shareholders up to 10 per cent of the restructured business.

A source in the BE camp said: "BE doesn't want shareholders to be left with nothing. It wants shareholders to be treated properly."

In February, when its creditors reached an outline agreement with the Government over the restructure, the DTI set 30 September as the final deadline to agree the detail of the refinancing. The Government warned that it reserved the right to place BE into administration if this was missed. It is now understood that both sides may need an extra fortnight to thrash out an agreement. A source close to the DTI indicated that the deadline may be extended.

Another condition of the government bail-out was the sale of BE's 50 per cent stake in AmerGen, the US energy company that owns Three Mile Island. BE was supposed to sell this by 30 June, but after failing to receive sufficient offers, the DTI extended the deadline indefinitely. It is understood that BE is in talks with two parties about the sale of AmerGen and hopes to strike a deal in the autumn.

BE, which produces around 25 per cent of Britain's electricity, was pushed close to the brink because of a collapse in the wholesale price of electricity. Unlike other power companies, BE doesn't have a retail business where it can offset wholesale losses.

Since February, wholesale prices have recovered, due in part to the hot summer. But BE has not reaped the rewards. Under pressure from the Treasury, it forward-sold two-thirds of its generating capacity on fixed contracts until March 2004. Because the deals were struck during the winter when wholesale prices were 29 per cent lower than they are today, BE is, each week, missing out on around £4.6m of revenue. "This fact hasn't been lost on us," said one source close to the bondholders.