Buy British Energy
argues Evil Knievil of www.t1ps.com

British Energy has paid for many a lunch over the past couple of years. I have been shorting it aggressively Convinced that it was going bust I regarded it as the quickest way of making money since Cherie Blair and her ghastly husband turned freeloading into an art form. But, while the liar-in-chief and the wicked witch continue will continue to carry on sponging forever, other things have changed and I am now aggressively long of British Energy to the tune of five million shares. I admit my timing was not perfect - I am only running at break-even at this stage but I am expecting to trouser it in a big way over the next six months. In putting together this bull case I am most indebted to the publication Utilities Week - a must read in every household and whose words I have cribbed liberally.

The Bail Out

British Energy runs nuclear power stations. As such it has high fixed costs and always has a potential liability for decommissioning its plants when they come to the end of their useful lives. Its problems started when a slump in electricity prices meant that it was not covering those fixed costs which exposed the fact that its borrowings were unsupportable. It was this that allowed me to profit so greatly on the short tack.

Then the Government stepped in with a "rescue" plan. Surprisingly for a body which shows an ability to waste taxpayers' cash of unmatched proportions this did not involve a huge bail out. Instead it involves the Government, bond-holders, BNFL, other creditors and an array of vastly overpaid parasites (i.e. advisors on a success only fee) reconstructing the business such that equity holders will be diluted to obliteration. This motley crew are determined that their proposed reconstruction goes ahead and the board seems happy to play ball but any such proposal must be agreed by shareholders and I think that the times they are a changin'.

If the reconstruction proceeds, existing shareholders will be diluted to 2.5% of the equity plus warrants to buy a further 5%. Since 65% of free cash flow will be diverted to the Nuclear Liabilities Fund (i.e. decommissioning), this 7.5% becomes an economic interest of just 2.6%. This is clearly not an attractive proposition and if it goes through the shares, at 7.65p may be overvalued. However, I think that even on the current reconstruction terms, 15p-25p will prove to be the eventual outturn.

In the interim results, announced in December, and again with the latest quarterlies British Energy warned shareholders that if they did not support the proposed reconstruction by approving either a scheme of arrangement or the disposal of the company, the shares would be de-listed and the reconstruction completed anyway. But if it can be shown that the company is a going concern without the reconstruction, Turkey's won't vote for Christmas and shareholders (who have to approve any deal) will block it.

The Upside from a No Vote

The disposal of British Energy's 50% interest in Amergen, netted 160 million pounds. This repaid the 94 million owed to the Government so removing its ability to force insolvency by calling in its loan. It leaves three groups of creditors to be satisfied from the remaining 66 million pounds, the 20 million pounds of other cash, any cash flow from trading since 12th December and any cash that can be released from the 359 million pounds tied up in trading collateral.

Group one are the bondholders, owed 408 million. The 2003 bonds have matured, but British Energy can probably pay the 110 million pounds owed to the holders from its cash. The 2006 and 2016 bonds may be in default even though their interest continues to be paid. They are very generously treated in the proposed reconstruction, as a result of which the bonds are trading well above par. They may have the right to put British Energy into receivership if the reconstruction is voted down, but it would not be in their interest to do so. In a liquidation, they would receive very little, whereas, if British Energy continues to trade, they will continue to receive interest and can be repaid in full on redemption.

The second group of creditors are the Banks who lent 475 million pounds to finance the purchase of the 2000 MW coal-fired Eggborough power station. They are being offered 150 million pounds in new bonds and 14% of the new shares being issued, worth some 150 million pounds at 5p each. The value of Eggborough has risen significantly in the last year. It is half the size of the Drax power station, and, like Drax, is being fitted with a Flue Gas Desulphurisation plant, due for completion this year. In December, Drax's creditors rejected an offer by International Power to buy up to 36% of its equity and 15% of its debt. Since then, the value of Drax's debt in the secondary market has continued to rise, and Drax is now valued in the market at about 1.25 billion pounds . This suggests that Eggborough is worth closer to 600 million pounds than the 300 million pounds it is valued at in the secondary debt market. If the reconstruction fails, the Eggborough banks will be significantly better off whether or not the power station is sold.

The third group of creditors are the three parties claiming 316 million pounds in relation to onerous trading contracts. Two of the contracts, accounting for half the total, were terminated in 2003, making their claims payable. The third contract, with Teeside Power, may be renegotiable. The sharp rise in electricity prices makes this contract to buy high-priced electricity no longer a financial liability, but 158 million pounds must still be found to satisfy the other two.



In the short term, British Energy would struggle to satisfy these creditors, but given time, the prospects look better. 75 million pounds was absorbed into working capital in the first half of 2003/4, which may be reversible. The Board is "exploring initiatives to reduce the demand for trading collateral," which should diminish as the forward sales run out. Halving the collateral would release 180 million pounds.

And Critically...

The strength of electricity prices means that British Energy will be highly cash-generative when it can take advantage of current prices, and only half of output for the year to 31st March 2005 has been sold forward at low prices. Implementation of the Emission Trading Scheme, due to start on January 1st, 2005, could add a further 10% to electricity prices, increasing profits and cash flow by 160 million pounds per annum. What British Energy's shareholders need is time.

Fortunately, the bureaucracy and delays of the European Union are working in our favour. The EU is not expected to reach a decision on the restructuring until the middle of 2004, delaying a shareholder vote until the Autumn. With luck, if it runs true to form the EU will take longer, postponing the vote until 2005. This gives more time for cash flow to build up and for the prospects to look more secure. It also gives larger shareholders time to prepare an alternative plan. This is necessary because British Energy is firmly committed to the restructuring. Shareholders cannot look to their Board to safeguard their interests and indeed should think about handing out P45s liberally to the top table.

While negotiating with the creditors is the short-term priority of such a plan, there are other considerations. If the reconstruction is voted down, it is quite possible that the government will force the reconstruction through by Act of Parliament, leaving shareholders with nothing. But does this sordid little Government really want to repeat its Railtrack fiasco with an election looming?

The key to this gamble - and I admit it is such - is that electricity prices are increasing which makes a big difference to cashflow. If shareholders are given time to work out an alternative plan, British Energy will still need to raise cash via a rights issue but it is not ludicrous to suggest that current investors will be left owning 65% of the company rather than 2.5%. In other words the shares would be worth 150p each and possibly rather more.

There are obvious risks. The board might steamroller shareholders into accepting a deal that is patently not in the interests of shareholders. Electricity prices might fall. Big shareholders might cave in cravenly. The EU might whizz through approval giving shareholders no time to organise. Okay, there is no risk of the EU being efficient that was my little joke. But there are risks. If I am wrong these shares could conceivably be overvalued but could even in this scenario head up towards 20p. But if I am right 150p here we come. On a risk reward basis that looks good to me.

Key Data

EPIC: BGY
NMS: 150,000
Market Cap: 47 million pounds
Market: Full
Spread: 7.6-7.7p

The MACD indicators are positive now: hopefully in the next few days we will see moving high. Unless so disastrous news arrive. At this point I dont think so, The trend is upwards so lets keep fingers cross and enjoy the ride.

is BGY tipped in share mega, any one got any idea?

yes in share mag today as a buy! what's going on??????????

It's going up cash.

British Energy denies rights issue rumours



LONDON (Reuters) - British Energy has denied rumours that a shareholder action group is planning to vote down the firm's proposed debt-for-equity swap in favour of a rights issue.

The stock rose almost 10 percent on Friday on newspaper reports that a shareholder group would push to refinance the debt-laden company through a five-for-one rights issue at 12 pence each.

"There is no shareholder action group," British Energy spokesman Andrew Dowler told Reuters. "And there is no institutional buying that we're aware of."

"It's illogical at best to think a rights issue would fill the company's finance hole," he added.

Shares in the company were up 3.2 percent at 16 pence at 12:07 p.m. after touching a year-high of 17p earlier in the day. A London-based trader said people were buying on the back of expectations of a rescue plan

Well someone does not care what British Energy say.
The second largest shareholders are a american mob with a track record
of taking profitable stakes in uk companies (m&s for one).
If they want a rights issue they may get one!!

I think Brandes Investments who have a significant stake in BGY maybe behind the rights issue story floating around. Brandes Investments are also causing developments in M&S.

This is a pivotal moment with regards to where the price will head from these levels. If the rights issue follows as outlined in the header post then the price will soar and the existing shareholders will not have their holdings diluted now anywhere near under the existing arrangements and if a rights issue does not follow and the restructuring is carried out with the significant dilution for existing shareholders which the company keep repeating in their news releases then the price will fall back.

PS. I do not have a position in this stock.

Market Report: British Energy slips as cash call rumours wane
Michael Jivkov
03 July 2004


British Energy was yesterday again the talk of the Square Mile as investors continued to speculate about the electricity generator's future structure. The latest excitement to surround the company has been caused by rumours that an action group of BE shareholders has been formed with the aim of forcing the company to raise fresh cash from the stock market. The aim of this would be to help the company finance its borrowings and thereby prevent it from having to execute its planned debt-for-equity swap, which would wipe out virtually all shareholder value.

However, a spokesman for BE yesterday denied any talk of a shareholder action group having been formed and noted that it would be impossible for an equity issue to raise enough cash to cover the company's existing liabilities, which run into billions of pounds.

Meanwhile, analysts argued that the company's future is firmly in the hands of its creditors. And investors only have to look to the bond market to see that this is the case. BE bonds trade at 175p in the pound. This means that bond investors are willing to pay over the odds for BE bonds, which were issued at par or 100p, because they are certain that the company's bonds will be converted to equity via the swap. This allows them a cheap way to gain a stake in restructured BE, which is likely to be a highly profitable concern.

Although BE's refinancing has yet to ratified by shareholders (a vote is expected before the end of the year) analysts believe it is very unlikely they will vote down the proposal. "It would be suicide for shareholders," one analyst argued. He noted that according to the agreement that BE's management struck with creditors last October, if shareholders were to oppose the restructuring they would see all of BE's assets transferred to a new company controlled by creditors and be left owning what is in effect a shell company. BE shares finished the day 0.5p lower at 15p as a way above average 29.5 million changed hands.

http://news.independent.co.uk/business/analysis_and_features/story.jsp?story=537659

Heavy dealing continued in British Energy, as traders said private investors were piling in. The group is awaiting approval for its refinancing package, expected in the autumn. British Energy rose to 17p at one stage, later closing .5 lower at 15p. Its 'A' shares, without voting or dividend rights, jumped 1.87p to 13.62p.

http://www.money.telegraph.co.uk/money/main.jhtml?menuId=243&menuItemId=2839&view=&grid=M3&targetRule=1&_DARGS=/money/Menu/SideMenuItemsFrag.jhtml.1_A&_DAV=-1

Among the smaller companies, British Energy eased 0.5p to close at 15p after a company spokesman claimed a 400m rights issue would be insufficient to cure its financial woes. But traders said there were still buyers around for the stock, thanks to wild rumours that the nuclear generator could be a takeover target for French rival EDF.

http://www.guardian.co.uk/business/story/0,3604,1253092,00.html

SueHelen

Would welcome your informed opinion on why down 10% this morning

PS - some 20 mins later its back to 3% so I think the answer is "a lemon"

Hi Oakapples142, all I know is speculative traders are driving this stock either way. Just look at the variations in the weekend press stories I posted. All kind of permutations are being thrown around at the moment by speculators. Hence expect the price to be volatile.

PS. I do not have a position in this stock.

The Daily Telegraph. 12/07/2004

FRESH HOPE FOR BRITISH ENERGY INVESTORS

Shareholders in British Energy have been thrown a lifeline by the Financial Services Authority, which has decided to close a loophole in its listing regulations that may scupper the current rescue plan for the company. British Energy, the UK's largest power producer, called in the government after its share price collapsed when it revealed its UK operations were losing five million pounds a week, due to trading conditions at that time. The debt for equity swap that ensued from the deal struck with its banks left investors with only 2.5 percent of the company. A spokesman for BE said: "We had to sign binding agreements in October. Without an agreement the company would have gone into administration and shareholders would have been left with no return at all."

Presumably they are talking about http://www.fsa.gov.uk/pubs/cp/cp04_08.pdf (see section 7)? Preumably if this was implemented in time then BE shareholders could vote against the restructuring in its present form without BE being able to delist the shares and go ahead anyway (as they have said they will).

RNS Number:2779A
British Energy PLC
29 June 2004

29 June 2004



British Energy plc

Notification of Interest in Shares pursuant to Part VI of the Companies Act 1985
(as amended)

In accordance with Part VI of the Companies Act 1985 (as amended), please note
that the interests of Cater Allen International Limited (CAIL) in the ordinary
shares of British Energy plc has increased to 18,749,022 ordinary shares or
3.02% of the issued share capital.

This holding has arisen from stock loan transactions done under the relevant
approved documentation as a principal trading member of the London Stock
Exchange.


This information is provided by RNS
The company news service from the London Stock Exchange
END

HOLBLGDLLUDGGSC

RNS Number:6973A
British Energy PLC
09 July 2004

9 July 2004


UK COMPANIES ACT 1985 - SECTIONS 198-203 - British Energy plc (the "Company")

This notification relates to issued common stock of the Company ("shares") and
is given in fulfilment of the obligations imposed by sections 198 to 203 of the
Companies Act 1985 (the "Act").

The Company was notified that as at close of business on 7 July 2004, The
Goldman Sachs Group, Inc ("GS Inc") of 85 Broad Street, New York, NY 10004, USA,
was interested, by attribution only, in a total of 22,771,077 shares.

Of these 22,771,077 shares:

* The interest in 14,965,852 shares arose from the interest held by Goldman,
Sachs & Co. ("GS&Co."), a direct subsidiary of GS Inc, acting as custodian.
These shares are, or will be, registered in the name of Goldman Sachs
Securities (Nominees), Limited.

* The interest in 4,380,225 shares arose from the interest held by GS&Co.
acting as custodian of 58,403 American Depositary Receipts ("ADRs"). These
ADRs are, or will be, held at the Depositary Trust Company of New York.

* The interest in 3,425,000 shares arose from a beneficial interest held by
Goldman Sachs International, a direct subsidiary of GS Inc, these shares
are, or will be, registered at CREST in account CREPTEMP.


This information is provided by RNS
The company news service from the London Stock Exchange
END

HOLBUGDRBSGGGSC

SueHelen, thank you for all your posts on this topic but I am confused about your last two. Presumably they explain why the price seems to be dropping despite the fact that there was some positive news for shareholders (ie: the FSA may change the listing rules and thus give shareholders some power to get a better deal in the restructuring). To a novice like me all this seems very strange, are you able to shed any light on this please?

RNS Number:9575A
British Energy PLC
16 July 2004


16 July 2004


UK COMPANIES ACT 1985 - SECTIONS 198-203 - British Energy plc (the "Company")


This notification relates to issued common stock of the Company ("shares") and
is given in fulfilment of the obligations imposed by sections 198 to 203 of the
Companies Act 1985 (the "Act").

We hereby notify you that as at close of business on 14 July 2004, The Goldman
Sachs Group, Inc ("GS Inc") of 85 Broad Street, New York, NY 10004, USA, was
interested, by attribution only, in a total of 25,786,077 shares.

Of these 25,786,077 shares:

* The interest in 14,965,852 shares arose from the interest held by Goldman,
Sachs & Co. ("GS&Co."), a direct subsidiary of GS Inc, acting as a
custodian. Theses shares are, or will be, registered in the name of Goldman
Sachs Securities (Nominees), Limited.
* The interest in 4,380,225 shares arose from the interest held by GS&Co.
acting as a custodian of 58,403 American Depositary Receipts ("ADRs").
These ADRs are, or will be, held at the Depositary Trust Company of New York
("DTC").
* The interest in 15,000 shares arose from a beneficial interest by GS&Co.
in 200 ADRs. These ADRs are, or will be, held at the DTC.
* The interest in 6,425,000 shares arose from a beneficial interest held by
Goldman Sachs International, a direct subsidiary of GS Inc, these shares
are, or will be, registered at CREST in CREPTEMP.


This information is provided by RNS
The company news service from the London Stock Exchange
END

Hi LordCake, the last 3 RNS are stating that Goldman Sachs have lately increased their stake in British Energy. In addition, Cater Allen International Limited (CAIL) have increased their stake too. The price is consolidating at 15 pence at the moment. See my previous posts, maybe a good idea to read the thread from the start. You should then be able to understand the scenario as the header title suggests : British Energy - One in a Lifetime Gamble Opportunity. (BGY)

PS. I do not have a position in British Energy.

Today's Daily Telegraph :

British Energy rose .5p to 16p on heavy turnover of 42m shares. Traders said the group is meeting institutions next week.

http://www.money.telegraph.co.uk/money/main.jhtml?menuId=243&menuItemId=2839&view=&grid=M3&targetRule=1&_DARGS=/money/Menu/SideMenuItemsFrag.jhtml.1_A&_DAV=-1