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Areva Finnish Nuclear Plant Overruns Approach Initial Cost After Provision
Areva SA, the French nuclear-reactor builder, took a new provision for cost overruns at a plant it’s building in Finland, leaving the door open for more charges as the project is still 2 1/2 years away from completion.
The company said yesterday it will book a charge of about 400 million euros ($491 million) in the first half as Finnish customer Teollisuuden Voima Oyj said this month the OL3 plant will start nuclear operations at the end of 2012 rather than by a previous June 2012 deadline.
Areva “has now installed the reactor pressure vessel and continues work on piping, but history suggests further delays are very likely,” Alex Barnett, an analyst at Jefferies International Ltd., who recommends buying Areva investment certificates, said in a research note today.
The new charge takes total provisions for cost overruns to about 2.7 billion euros for the first-of-its-kind project, which Areva pledged in 2005 to build for 3 billion euros and complete in 2009. That’s adding pressure on the state-controlled company, which is seeking to raise about 3 billion euros by selling new shares this year to fund expansion and preserve its A credit rating, which may be cut by Standard & Poor’s.
The French government and Chief Executive Officer Anne Lauvergeon are trying to convince Mitsubishi Heavy Industries Ltd. and the sovereign wealth funds of Kuwait and Qatar to buy the new shares. The talks have been held back as the French government seeks to clarify Areva’s financial situation and works on a plan for the country’s nuclear industry, following spats between Areva and power utility Electricite de France SA.
EDF-Areva Talks
The two state-controlled companies remain at odds over nuclear fuel supplies, and “negotiations with EDF on conditions for the shutdown of the Georges Besse 1 enrichment plant” continue, Areva said in its statement yesterday.
Excluding the Finnish provision and possible costs for the French enrichment plant, the operating margin for the first half should be about 4 percent, Areva said. It will probably post an increase of about 2 percent in first-half revenue, while full- year backlog and revenue will show “significant growth.”
“Areva seems to be able to deliver” on its growth targets, said Natixis analysts Philippe Ourpatian and Celine Cherubin in a note to investors today. They recommend buying Areva’s investment certificates.
Standard & Poor’s said on April 14 it may cut Areva’s debt rating from A, its sixth-highest grade, unless the Paris-based company clarifies its debt-reduction plan.
TVO Claims
Areva had 6.2 billion euros of net debt at the end of 2009, including 2 billion euros earmarked for the purchase of Siemens AG’s 34 percent stake in a reactor joint venture. Siemens, which used an option to exit the business last year, agreed to create a rival venture with Russia’s Rosatom Corp. to compete against Areva, sparking litigation.
Areva also faces 1.4 billion euros in claims from TVO for the delays at the Finnish plant, while Areva is suing its customer for 1 billion euros.
Lauvergeon, who’s planning to invest 6.5 billion euros by 2012 to develop uranium mines and nuclear equipment and to expand in renewable energy, also needs to agree with the government on how much the state would pay to buy Areva’s stakes in mining company Eramet SA and chipmaker STMicroelectronics NV.
She sold Areva’s power-grid unit to Alstom SA and Schneider Electric SA this year for an enterprise value of 4.1 billion euros. Areva said yesterday it will book a 1.3 billion-euro capital gain from the sale in the first half, allowing net income to be “sharply up” from a year earlier.
Areva is due to report first-half results on July 30.
The French state owns 91 percent of Areva, and EDF owns a 2.5 percent stake. About 4 percent of Areva trades on the Paris stock exchange as non-voting investment certificates. They fell 2 percent to 351.45 euros as of 2:22 p.m., giving the company a market value of 12.5 billion euros.
To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.
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