Rebel investors attack British Energy rescue

Rebel investors have launched a campaign to scrap the proposed £5bn rescue deal at British Energy, the nuclear power generator, which would leave shareholders owning just 2.5 per cent of the company.

Polygon Investments, a UK hedge fund owning 5.6 per cent of British Energy shares, says the restructuring is "worse than a mugging" for shareholders, and is offering to underwrite a new refinancing deal.

Polygon's proposals were initially given short shrift by British Energy, but over the weekend a big institutional shareholder - Invesco, with 6 per cent - indicated its willingness to support a refinancing and Polygon urged other investors to join its campaign.

British Energy was insisting yesterday that the rebel shareholders' plan was a non-starter. "We had to sign binding agreements with creditors last October," the company said in a statement. "We now have an obligation to implement that agreement." The company is furious at the idea that shareholders who refused to refinance the company when it fell into difficulties in 2002 are now hoping to claw back some of the value they have lost.

Under current plans, shareholders will be left with a maximum of 2.5 per cent of a refinanced British Energy, with the Government holding a majority stake and bondholders taking up to 33 per cent. Since the deal, a revival in wholesale electricity prices has improved British Energy's fortunes. As a result, the company's equity is more attractive and its bonds, which will be swapped for shares, are trading at an 80 per cent premium to their face value.

The refinancing hammered out with the Government and bondholders says that the company will be delisted from the stock market if shareholders do not approve the deal. Polygon is claiming that a stock market rule change, which comes into force this year and which requires companies to get shareholder approval before delisting, means that British Energy could not delist. If the rule change comes in time, Polygon says it will vote against the deal, but it is also hoping shareholders will put pressure on the Government to renegotiate.

One Polygon insider said: "The creditors have carried out more than a mugging, nicking this company off 230,000 private shareholders and some grown-up institutions. No alternative is a non-starter when the Government is going to end up owning 65 per cent of the company."

British Energy said: "Without an agreement in October, we would have faced administration and shareholders the likelihood of no return at all. What they are getting under the proposals is more than shareholders have got in recent similar situations."