€1.8bn deal to save British Energy

Troubled nuclear power group British Energy announced today that it is in the process of signing a deal to prevent it being placed in administration.

Shares in the group, which provides a fifth of the UK’s electricity needs, are being suspended while the deal is signed.

The generator was expected to announce details of the complicated £1.3bn (€1.8bn) debt-for-equity deal this morning after a deadline of midnight last night to secure the backing of banks and bondholders passed.

British Energy issued a statement to the London stock exchange this morning saying that it was "in the process'' of signing restructuring agreements with creditors and British Trade and Industry Secretary Patricia Hewitt.

The London Stock Exchange confirmed that trading in a series of shares and bonds had been suspended at the company’s request pending a further announcement.

If the deal goes ahead, embattled shareholders, including many private investors, will be left with a fraction of the East Kilbride-based company - privatised in 1996.

The deal would also pave the way for the Government to assume £3bn (€4.3bn) of nuclear decommissioning liabilities in return for 65% of cash flow.

Trade and Industry Secretary Patricia Hewitt warned earlier this year that British Energy would be pushed into the hands of administrators at KPMG unless a restructuring deal was completed by the end of September.

The failure of the talks would effectively bring about the renationalisation of British Energy, a move which would have safeguarded the future of the power stations.

And even if the backing of lenders is confirmed, it would still face the threat of a European Commission investigation into Government state aid. The outcome of the inquiry is not due until next summer.

The company was only kept afloat last year by a £650m (€927m) British government loan, which it has since repaid, after being pushed to the brink of bankruptcy. A further £200m (€285m) loan was then put in place until its long-term future is sorted.

British Energy, which employs around 5,000 people, has blamed its problems on the high fixed costs of nuclear generation and a steep decline in wholesale electricity prices.

In June, it announced losses of £4.3bn (€6.1bn) after slashing the value of its power plants and warning it could yet fall into insolvency.

The company cut the book value of its eight UK nuclear plants by £3.6bn (€5.1bn) to around £800m (€1.1bn) and the Eggborough coal-fired station by £151m (€215m).

The plants are at Hinkley Point, Somerset; Hunterston, Ayrshire; Dungeness, Kent; two at Heysham, Lancashire; Hartlepool; Torness, East Lothian; and Sizewell, Suffolk.

British Energy shares, which once hit more than 700p in 1999, closed last night at 5.35p. That gave the company a market value of just over £33m (€47m).