Relisted British Energy warns on battle ahead

BRITISH Energy returned to the stock market today with its old shareholders all but wiped out and warnings from its chief executive that it will face a struggle.

After a controversial debt-forequity swap and multi-billion-pound restructuring, reconstituted shares in the nuclear generator started ticked up 1p to 286p, valuing the company at more than £1.6bn.

Trading in shares in British Energy, many of them held by socalled Sid small investors from the last the Tory Government's major privatisation, was halted in October priced at just 13½p after two years of tortuous negotiation that had seen the country's largest generator of electricity kept afloat by Government handouts and lines of credit of up to £650m.

Since the delisting, lenders and bondholders have swapped their mountain of debt for equity while shareholders have been given just one new share in the company for every 50 previously owned. Old shareholders have also been granted 2.1 warrants for every 50 shares held, and these can be converted to shares at a later date.

The City, and indeed British Energy's management, are uncertain about the company's future.

Chief executive Mike Alexander said: 'The restructuring has been successfully implemented but our job is far from over.' In a swingeing attack on BE's previous management led by ousted executive Robin Jeffrey, Alexander added: 'The new management team has started to address the past underinvestment and unacceptable output. We must put it right but it will not be easy and it will take time.'

Analysts at UBS say British Energy could be worth anything between 100p and 300p. Morgan Stanley has been advising investors to be cautious, putting a 210p a share tag on the company.

Its problems are legion. Because of the high fixed costs of producing nuclear power, it has become chronically loss-making. It is also tied into supply contracts at way below the prevailing price on the market. Production last year dived by 10% as the company struggled to deal with continuing maintenance problems.

There are grave doubts over the future of nuclear generation in the UK. All eight of its nuclear stations - it also owns the Eggborough coal-fired station in Yorkshire - are due to be decommissioned by 2020.

There is a moratorium on building new nuclear power stations although the Prime Minister has indicated the UK may have to build more if it is to get a balanced energy portfolio and reach an internationally agreed target of generating up to a fifth of the country's electricity from non-fossil fuels.