EDF Tumbles After Announcing Share Sale, Cost-Cutting Plan

  • Utility intends to sell about 4 billion euros of new stock
  • CEO Levy said to push back decision on Hinkley plant by months

Electricite de France SA dropped the most in seven weeks in Paris trading after announcing plans to sell about 4 billion euros ($4.5 billion) of new shares and deepen cost cuts.

EDF sank as much as 8.6 percent, the biggest intraday decline since March 7, and the most among companies on the Euro Stoxx Utilities Index.

The utility is seeking to bolster its finances as it studies whether to move forward with a controversial nuclear power plant project in the U.K. On top of the stock sale, EDF will sell 10 billion euros of assets, including a stake in French power-grid operator RTE, by 2020, and deepen planned spending cuts to 1 billion euros by 2019, according to an April 22 statement.

“The increased cost-reduction program is hardly a step up, and we believe that EDF should set tougher targets,” Martin Young, an analyst at RBC Europe Ltd. in London, said in a note.

The French government, which owns 85 percent of EDF, had previously resisted the company’s demand for a share sale to raise capital. In its own statement Friday, the government said it’ll subscribe to 3 billion euros of the capital increase and take its 2016 and 2017 dividend payments in shares. It also said the sale of the RTE stake should take place by the end of this year.

Price Rout

“Execution of the new plan will buy EDF time with the credit rating agencies, allowing it to maintain solid investment grade rating till 2018,” analysts at Jefferies Group LLC said in a note. “However, for this to be the case in the long term, a recovery in power prices is essential.”

EDF shares have lost half of their value over the past year as a drop in European power prices and falling market share at home sap cash flow. Electricity tariffs in Europe have declined 26 percent in the past year, according to broker pricing compiled by Bloomberg.

Speculation has mounted over EDF’s plans to build two new reactors at Hinkley Point in southwest England, with Chief Financial Officer Thomas Piquemal resigning last month amid concerns the 18 billion-pound ($26 billion) development would put the company under too much financial strain.

Chief Executive Officer Jean-Bernard Levy has pushed back a decision on Hinkley, previously scheduled to be made by May, by several months to consult more with employees, a person familiar with the matter said last week, asking not to be identified because the matter isn’t public. French Economy Minister Emmanuel Macron told Journal du Dimanche on April 24 that the final investment decision on Hinkley Point may be confirmed in September.

Stock Sale

EDF will submit a plan for its proposed capital increase by the closing date of its 2016 accounts, subject to market conditions, the company said Friday.

“There could be up to 10 months before the capital increase plan is communicated, and this suggests a period of volatility for the stock,” RBC’s Young said.

The shares traded down 7.8 percent at 11.28 euros as of 11:39 a.m. Paris time, valuing the company at 21.7 billion euros. The Euro Stoxx Utilities Index fell 1 percent.

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