Shares plunge hits nuclear sell-off

British Energy warns over reactor shutdowns. Government's £3bn stake sale facing delay

Fresh doubts were cast over the Government's plans to raise some £3bn from the sale of shares in British Energy yesterday after the nuclear power producer warned that output this year would be further hit by cracks in some of its reactors.

The warning sent British Energy shares 8 per cent lower, wiping nearly £500m from the value of the Government's 65 per cent holding in the company. Since late July, when the Trade and Industry Secretary, Alistair Darling, confirmed that the Government intended to proceed with the disposal of part of its stake through a public offer, British Energy shares have fallen by 16 per cent.

Although ministers have never given any details about the timing or scale of the share sale, it is thought that the Government planned to launch the offer late this year and to sell between 20 and 30 per cent of British Energy, raising between £2bn and £3bn.

Citigroup, Deutsche Bank and Merrill Lynch were appointed to advise the Government on the share sale in early August.

In a circular issued yesterday, Citigroup's energy analyst Peter Atherton said that the additional uncertainty caused by British Energy's announcement "calls into question the ability of the UK Government to sell down its stake this year".

British Energy said in August that output this year could be 2 TWh (terawatt hours) less than planned because of cracks in boiler tubes on one of the units at its Hunterston B station.

Yesterday, it said that delays in bringing Hunterston B back into service and the need for similar safety checks on a sister station, Hinkley Point B, meant that output could be cut by a further 2 TWh.

Analysts estimated the delays could shave £50m-£60m from British Energy profits this year, but warned that, because of the nature of the problems, there could be further unplanned reactor shutdowns in future years.

Brokers at Dresdner Kleinwort Benson said: "The market is likely to be very disappointed in another downward revision for output, especially with the prospect of further problems going forward. As British Energy's stations get older there may be further operational issues and the market is likely to be worried about continuing problems and targets being missed."

A DTI spokeswoman said the Government was still "actively considering" the sale of part of its stake in the group and would take into account what British Energy had said. She reiterated that the intention was to dispose of the shares through a "capital markets transaction" rather than a trade sale. There has been speculation that EdF, the state-owned French electricity company, and the two German utilities RWE and E.ON could be interested in buying British Energy.

At British Energy's closing share price last night of 582.5p, the company is worth £9.4bn, valuing the Government's 65 per cent stake at £6.1bn. The vale of the company has soared since it was rescued through a £5bn government bailout and re-listed on the London market 18 months ago. However, in the past three months, the shares have slipped due to the flow of negative news on station shutdowns and the fall in wholesale electricity prices.

Even so, a sale of half of the Government's remaining shareholding would still represent one of the biggest secondary offerings seen on the London market.