EDF Seen as `Uninvestable' as France Weighs Financial Help

  • CEO seeks French state commitments for U.K. nuclear project
  • Hinkley Point to provide 9% return over 60 years, Levy says

Electricite de France SA is “uninvestable” as the French government encourages the state-controlled power company to proceed with the 18 billion-pound ($26 billion) Hinkley Point atomic plant in the U.K. without doing enough to strengthen its finances, RBC Capital Markets said.

The government, which owns 85 percent of EDF, should “consider re-nationalizing” the utility if it pushes Hinkley Point forward as the project’s political dimension makes the stock too risky for minority shareholders, Martin Young, an analyst at RBC, said Monday in a note to investors. EDF Chief Executive Officer Jean-Bernard Levy sought to reassure employees last week, saying the company is negotiating with the French state “to obtain commitments allowing us to secure our financial position.”

“EDF needs a meaningful action plan to secure its own future,” Young said, citing the need to cut costs and sell assets to narrow the company’s focus. “EDF’s management should not risk bringing the company to its knees, and should not proceed with Hinkley Point.”

EDF’s finances are coming under strain as falling power prices and rising competition threaten future earnings while it needs to spend 50 billion euros ($56 billion) by 2025 to renovate its fleet of French nuclear reactors. Chief Financial Officer Thomas Piquemal resigned eight days ago after his plea to delay Hinkley Point was rejected. The company’s stock has dropped 43 percent in the past six months.

Renewed Support

“I will not engage EDF in this project before these conditions are met,” Levy said in a letter to employees released by EDF on March 12. “Contractual and commercial aspects have been thoroughly examined, including by independent experts, and allow us to be confident to definitively launch the project.”

Levy received renewed support from the French and British governments last week as he prepares to make a final investment decision for Hinkley Point. The power company and its Chinese partner, which has a 33.5 percent stake in the project, have been offered price guarantees by the U.K. government for 35 years that are almost triple the current market rate.

The project has “a good return of around 9 percent a year for 60 years,” Levy wrote. “I am convinced of the robustness of the guaranteed price, which has been approved by Brussels, and secured in the long term through the contract for difference.”

Deadline Concerns

France’s State Auditor also expressed concerns last week about EDF’s ability to build the U.K. project on time and on budget amid delays in the construction of similar power stations by EDF in France and China.

Hinkley Point will benefit from feedback from those plants, according to Levy, who said the projects will boost a key French industry.

“The construction of these EPRs will open further avenues for our French nuclear expertise,” Levy wrote. “Hinkley Point C will represent 15 percent of our investments on average for 10 years, leaving significant room for other major group projects.”

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