International Power plunges on £800m default disclosure

Shares in International Power hit an all-time low yesterday after the electricity generator disclosed that it is in technical default on nearly £800m of power station loans.

The company, which has seen its market value collapse by two-thirds in the past 12 months, also warned it saw no prospect of price increases in two of its key markets, the US and the UK, until more capacity was closed down. International Power shares fell 11 per cent to close at 73p – the lowest since the company was split off from Innogy two and a half years ago after the demerger of National Power.

The company is in default on £620m of US non-recourse debt used to finance the construction of gas-fired power stations in New England and Texas because of delays in getting insurance cover against terrorist attack. Its bankers are also withholding a final tranche of loans running into tens of millions of pounds.

International Power is also in default on a £160m loan used to buy the Rugeley power station in the UK after the collapse of TXU Europe and the termination of a tolling agreement to buy electricity from the plant. The company has now written down the value of Rugeley by £58m, because of TXU's collapse and the general decline in wholesale electricity prices.

David Crane, International Power's chief executive, stressed that the US default was technical in nature. "We believe we have constructive and acceptable plans to resolve all issues to the mutual benefit of International Power and the banks," the company added.

It also said it was in discussions to ensure a "mutually acceptable solution" to the Rugeley default.

Industry sources said one solution might be to turn the loans into recourse debt; in which case they would be secured against the parent company's assets, not just the power stations in question.

Mr Crane said International Power expected prices to remain flat this year in the US and the UK. Although announced power stations closures now exceeded the amount of new capacity coming into the US market, the company said "further removals of inefficient capacity are required to initiate any price recovery".

The collapse of TXU will knock £22m off International Power's post-tax profits this year by forcing it to sell Rugeley's output for less on the merchant market.

But Mr Crane maintained that International Power was still better placed than many of its rivals. "We have taken a couple of nicks but compared with others in the sector we are in an extremely good position," he added.

Profit before interest, tax and one-off items was up by 19 per cent to £388m last year but pre-tax profits were £7m lower at £195m.