EDF's hands tied tighter by UK's golden share in Hinkley Point

Last Updated: Thu, Sep 15, 2016 20:21 hrs
Men work at the Hinkley Point C nuclear power station site near Bridgwater in Britain

By Geert De Clercq

LONDON (Reuters) - Heavily indebted French utility EDF had its hands tied tighter on Thursday as it accepted the British government's demand for an effective 'golden share' in its $24 billion Hinkley Point C nuclear plant project in England.

EDF's bond yields rose to their highest in two months, while the cost of default insurance for its debt rose more than three percent after news of the deal, which allows the British government to prevent the French state-controlled firm from selling its controlling stake.

Shares in EDF eased 1.5 percent to 11.035 euros, close to their lowest since July. They fell 40 percent in 2015 and have dropped a further 17 percent this year amid worries about the company's abilities to absorb extra financial charges.

Ratings agency Moody's said the project added to EDF's risk profile.

"The Hinkley Point project's significant scale and complexity are likely to affect both EDF's business and financial risk profiles," Moody's senior credit officer Paul Marty said in a statement, noting that it represents a long period of heavy investment with no cash flow to compensate.

While EDF is profitable, it has had to borrow billions of euros in recent years just to pay dividends, pushing net debt to over 37 billion euros, more than twice its market value.

Other burdens include the planned acquisition of lossmaking nuclear group Areva on the instructions of the French government, which holds an 85 percent stake in EDF.

State-imposed caps on its power tariffs and the future cost of decommissioning old reactors and building new ones in France also weigh on the company.

Thursday's agreement puts Hinkley Point, a 66-percent owned joint venture with China General Nuclear of China, back on track for completion of the first of two reactors in 2025 after incoming British Prime Minister Theresa May put it on hold in July.

EDF chief Jean-Bernard Levy said it is crucial to the company's future as an international nuclear industry player, but other senior executives, French unions represented on the EDF board and some analysts oppose it on financial risk grounds.

Thomas Piquemal resigned as EDF finance director in March this year, having lost his battle to persuade Levy to negotiate a three-year delay while the risks were reassessed.

Others argue that the plan also ignores the advances being made in the renewable energy sector, despite the industry's legitimate claim to be helping keep a lid on carbon emissions.

"The respective governments (UK and France) deprive their citizens and small companies of the opportunities for jobs and innovation that would come from inventing the 21st century energy world," said former EDF board member Gerard Magnin, who resigned over Hinkley Point in July.

(Additional reporting and writing by Leigh Thomas, Andrew Callus, Michel Rose and Bate Felix; editing by Giles Elgood)