British Energy will split in three to win EU approval

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The Independent Online

British energy looks set to reorganise its three divisions into legally separate companies in order to win approval for its proposed financial restructuring from the European Commission.

British energy looks set to reorganise its three divisions into legally separate companies in order to win approval for its proposed financial restructuring from the European Commission.

The company is expected to legally ring-fence its nuclear power division from its coal-powered generating business and power supply operations. This will be to make sure that cash arising from the Government bailout of the stricken nuclear business cannot be used in other parts of the group.

The Government has agreed to underwrite the costs of British Energy's nuclear decommissioning programme in return for a share of the company's cash flows. There will be a debt-for-equity swap handing control of the group to its banks, leaving current shareholders with only 2.5 per cent of the group.

The reconstruction is opposed by some of its largest shareholders, who believe rising electricity prices have transformed the economics of the business since the original restructuring was agreed. They say existing shareholders should get 30 per cent of the reorganised group.

However, the agreement signed with creditors is expected to get European Union approval next month on condition that public funds received by British Energy for thedecommissioning costs are tightly ring-fenced and cannot be used to help support other parts of the business.

Regulators will want to see separate accounts for each of the three legal entities, to be able to track cash coming into the various businesses.

British Energy refused to comment on the likelihood of the restructuring, insisting only that attempts by shareholders to derail the process would not succeed. As well as being sued by its creditors, breaking the agreement on the proposed restructuring may land the company in administration.

Reports yesterday suggested that as part of the EU conditions for agreeing the restructuring, British Energy would not be allowed to extend its coal-powered generation at its Eggborough power station. However, the EU may allow it to expand without restrictions into renewable energy generation such as wind and wave power.

The shareholder rebellion is being led by Polygon, a US hedge fund. On Tuesday it said it was prepared to convene an extraordinary meeting to include resolutions forcing the company to renegotiate the terms of the debt-for-equity swap. It has as yet not carried out the threat.

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