EDF Begins $4.2 Billion Share Sale to Bolster Balance Sheet

  • Proceeds will also help fund planned nuclear plant in England
  • Jefferies sees ‘positives’ for medium-term investment case

Electricite de France SA, Europe’s biggest power producer, began a sale of 4 billion euros ($4.2 billion) of shares to bolster its balance sheet and help fund a planned nuclear plant in southwest England.

Existing investors can buy three new shares for every 10 they own at 6.35 euros apiece, a third lower than Monday’s price. The French state, which owns about 86 percent of the utility, will subscribe for about 3 billion euros of stock, Paris-based EDF said in a statement.

The company announced plans for the sale last April. EDF suffered from a lackluster electricity market last year as well as prolonged halts at some of its atomic plants, prompting it to cut 2016 profit forecasts twice. Rising competition also threatened the cash flow it needs to renovate its French reactors and fund a new nuclear power station at Hinkley Point in the U.K.

EDF rose 1.3 percent to 9.74 euros at 10:04 a.m. in Paris trading on Tuesday, the highest intraday price since January. The stock initially fell 2.2 percent.

“Although the discount implied in the equity raise is higher than expected, we do see some positives here for the medium-term investment case,” said Ahmed Farman, an analyst at Jefferies International Ltd. in London. The announcement removes uncertainty for shareholders and “the proceeds would help strengthen EDF’s balance sheet,” he said in an email.

The rights will trade on Euronext Paris from Wednesday through March 17, and the subscription period will run March 10 to March 21, the statement shows.

EDF has cut costs and jobs, pared investments and set out a plan to divest at least 10 billion euros of assets from 2015 to 2020 to help fund its 12 billion-pound ($15 billion) share of the Hinkley Point plant. It must also this year complete its purchase of at least 51 percent of Areva SA’s reactor unit after last year announcing a binding agreement to take control of the 2.5 billion-euro business.

“Assuming this 4 billion-euro rights issue enables a slight decrease in financial expenses in the very short term, while funding part of the Areva NP acquisition, earnings-per-share dilution would be limited to the tune of about 16 percent to 17 percent,” Pierre-Antoine Chazal, an analyst at Bryan Garnier & Co. in Paris, said in a note.

EDF in February reported a 15 percent decline in 2016 adjusted earnings, and said 2017 will remain “difficult,” while 2018 will be “the year of the rebound.”

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