Hedge funds pile into British Energy

THE pressure gauge is rising at nuclear power group British Energy. Powerful hedge funds are piling into the shares, apparently hoping BE will renegotiate the crippling terms of its rescue by Government and bondholders. If BE refuses, a row could break out.

The shares, 3.2p last year, soared to 13.9p in frantic trading, forcing BE to say it is 'not aware of any information...that explains the recent rise and the trading volumes'.

That cooled the market. BE closed up 2 1/4p at 10 1/4p, with 240m shares traded in two days.

Aggressive US players Appaloosa Investment Partnership and Palomino Fund have snapped up 4.6p%of BE. Goldman Sachs has 4.4%, mostly as a custodian for others.

BE, which has nine power stations, all but collapsed last year after electricity prices slumped. Rescue talks followed, which will cost a hefty £120m in fees. The Government guaranteed loans and took on £3bn of liabilities in return for 65p% of the cashflow. Bondholders are to scoop most of the rest, leaving shareholders with just 2.5%, with an option to go to 7.5%.

Power prices have since soared. New investors think BE could return to the £400m cashflow it had in 1999. Some believe it could unlock the restructuring and pay off the bonds with a share issue.

BE said: 'This agreement was signed by all parties. It took a year to achieve. If shareholders do not approve it, BE could go into administration and they would get nothing.'

Appaloosa boss David Tepper may have other ideas. His group loves bombed-out companies, and may have made $100m (£55m) at Marconi.

Among others joining the fray was bear raider Simon Cawkwell - the self-styled Evil Knievil. He used to sell BE shares short, but is now buying. He said: 'This is the trade of a lifetime.'