EDF shares tumble on plan to raise cash to help fund Hinkley Point
By Paul Homewood
From the Telegraph:
EDF shares dropped more than 7pc on Monday as investors reacted to its plan to sell €4bn (£3bn) of new shares to help it finance the building of the Hinkley Point nuclear plant.
The French energy giant, which is 85pc-owned by the French state, announced the plans for a rights issue as well as further cost-cutting measures after the market closed on Friday night.
The French Government has indicated it will subscribe to €3bn of new shares through the rights issue as well as taking a scrip dividend option for 2016 and 2017, so diluting the value of existing shareholdings.
EDF has been forced to shore up its finances as it is hit by increasing exposure to falling wholesale electricity prices, at the same time as it tries to afford its share of the £18bn nuclear plant in Somerset and upgrades to the existing French nuclear fleet.
Analysts at Jefferies said: "Execution of the new plan will buy EDF time with the credit rating agencies, allowing it to maintain solid investment grade rating till 2018.
"However, for this to be the case in the long term, a recovery in power prices is essential. Also, the new plan is likely to result in painful earnings dilution.”
Analysts at RBC Capital Markets said the measures EDF was taking showed it was "waking up to the gravity of the current market conditions", adding: "We very much suspect that this is a move to help finance Hinkley Point C rather than solely repairing the balance sheet."
Doubts have grown over the future of Hinkley Point in recent months as EDF has repeatedly postponed a final investment decision that it had expected to take within a "few weeks" of a deal with Chinese investors last October.
Subsequent target decision dates of the end of January, mid-February and the end of March have come and gone, with chief financial officer Thomas Piquemal resigning at the start of March amid concerns that Hinkley would put EDF under too much financial strain.
The most recent target decision date of early May – set just a few weeks ago by Emmanuel Macron, the French economy minister – was abandoned on Friday when EDF announced it would embark on a new statutory consultation with unions hostile to the project.
In a newspaper interview this weekend Mr Macron said a decision could now be taken in September.
The comments cast fresh doubt over the likelihood of the plant starting up in 2025 as planned.
So the decision date falls back another five months. The biggest irony though that it is the French govt which owns most of EDF, and will take the financial hit from dilution of capital.