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

RNS Number:4671B
British Energy PLC
30 July 2004

30 July 2004
British Energy plc

NUCLEAR OUTPUT PROJECTION FOR 2004/05 FINANCIAL YEAR

Following evaluation of structural inspections carried out during the current
statutory outage at the Hartlepool power station and intensive discussions with
the Nuclear Installations Inspectorate, the company has decided that further
work to demonstrate the integrity of certain boilers is necessary. This work may
entail visual inspections of a number of boilers at Heysham 1 (one reactor is
shut down and the other is due to be shut down for its statutory outage in
August) and at Hartlepool (one reactor is currently shut down and there is no
impact on the operation of the other reactor).

The company has reviewed its annual nuclear output target previously announced
at 64.5TWh. The company believes that in the light of the new issues at
Hartlepool and Heysham 1 it is prudent to revise the nuclear output target for
the 2004/05 financial year to around 61.5TWh.

A further update on the matter will be given at the time of the company's annual
general meeting on 5th August 2004.

British Energy's Proposed Restructuring remains subject to a large number of
significant uncertainties and important conditions, including receipt by the
Secretary of State for Trade and Industry (the 'Secretary of State') of a
satisfactory notification from the European Commission that in so far as the
proposals involve the grant of State Aid by the UK Government, such aid is
compatible with the common market. The Secretary of State expects to receive
this notification by autumn 2004. Furthermore, the Secretary of State is
entitled not to proceed with the Proposed Restructuring if, in her opinion, the
Group will not be viable in all reasonably foreseeable conditions without access
to additional financing beyond that which is committed and will continue to be
available when required.

If for any reason British Energy is unable to implement the Proposed
Restructuring it may be unable to meet its financial obligations as they fall
due in which case it may have to take appropriate insolvency proceedings. If
British Energy were to commence insolvency proceedings, distributions, if any,
to unsecured creditors may represent only a small fraction of their unsecured
liabilities and it is highly unlikely that there would be any return to
shareholders. Even if the Proposed Restructuring is completed, the return, if
any, for shareholders will represent a very significant dilution of their
existing interests.

This document contains certain "forward-looking" statements as defined in
Section 21E of the US Securities Exchange Act of 1934, including statements with
respect to British Energy's business plans, the performance of its stations,
electricity prices and other matters that are not historical facts concerning
the business operations, financial condition and results of operations of
British Energy. These forward-looking statements typically contain words such as
"intends", "expects", "anticipates", "estimates", "aim", "believe", "assume",
"should" and words of similar import, which are predictions of or indicate
future events or future trends. These forward-looking statements involve known
and unknown risks, uncertainties and other factors, which are in some cases
beyond the control of British Energy and may cause actual results or performance
to differ materially from those expressed or implied from such forward-looking
statements.


Contacts:
Andrew Dowler Financial Dynamics, Media 020 7831 3113
Paul Heward British Energy 01355 262 201
Website: www.british-energy.com


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

MSCQBLFXZDBLBBE

Cater Allen International Limited have less than a 3% stake now :

RNS Number:4777B
British Energy PLC
30 July 2004

30 July 2004

British Energy plc


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

In accordance with Part VI of the Companies Act 1985 (as amended), please note
that as of 21 July 2004, Cater Allen International Limited (CAIL) no longer has
a reportable interest in the ordinary shares of British Energy Plc.



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

HOLBRGDRDSXGGSG

Error in one of the previous RNS relating to Goldman Sachs, they have an interest in only 31 million shares and not around 103 million shares as stated in one of the RNS's during the week :


RNS Number:4775B
British Energy PLC
30 July 2004

30 July 2004

British Energy plc

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

NOTICE TO BRITISH ENERGY FROM GOLDMAN SACHS GROUP INC

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").

It has come to our attention that, as a result of erroneous information provided
to us by a third party, the notification provided on 28 July for the close of
business 26 July was incorrect and that no disclosure by The Goldman Sachs
Group, Inc to you was necessary at that time.

We hereby notify you that as at close of business on 29 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 31,078,577 shares.

Of these 31,078,577 shares:

The interest in 21,465,852 shares arose from Goldman, Sachs &: Co.
("GS&Co."), a wholly-owned 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 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 ("DTC").

The interest in 7,500 shares is a beneficial interest by GS&Co. in 100
ADRs. These ADRs are, or will be, held at the DTC.

The interest in 5,225,000 shares is a beneficial interest held by Goldman
Sachs International, a wholly-owned indirect 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
HOLBRGDRBSXGGSG



BR.Energy(BGY) Click for Fundamentals
Name Symbol Market Type ISIN Description
BR.Energy LSE:BGY London Stock Exchange Equity GB0007382939 ORD 44 28/43P





Sector Turnover (m) Profit (m) EPS - Basic PE ratio Mkt Cap (m) NMS
Electricity 1516.0 232.0 38.9 0.572 138.03 100000

LONDOn (AFX) - British Energy PLC said erroneous information provided by an
unnamed third party led to an incorrect statement being issued regarding Goldman
Sachs's holding in the company.
"It has come to our attention that, as a result of erroneous information
provided to us by a third party, the notification provided on 28 July for the
close of business July 26 was incorrect and that no disclosure by the Goldman
Sachs Group, Inc to you was necessary at that time," said British Energy.
At the close of business yesterday, the Goldman Sachs Group, Inc was
interested, by attribution only, in a total of 31,078,577 shares, as opposed to
103 mln shares as was revealed yesterday.
Yesterday, a Goldman Sachs spokesman told AFX News the shares had been
bought on behalf of a client. The investment house refused to give any other
details.

In today's Daily Telegraph Newspaper :

Brit Energy issues correction
By Tessa Thorniley (Filed: 31/07/2004)


The developing saga at British Energy took a surprise twist yesterday after Goldman Sachs, the American investment bank, was forced to retract a stock market announcement that had falsely claimed it had acquired a 15.8pc stake in the troubled nuclear power group on behalf of a mystery client.



A statement from British Energy to the City last night said: "Erroneous information provided by an unnamed third party led to an incorrect statement being issued regarding Goldman Sachs' holding in the company."

Although Goldmans declared an interest in 103m British Energy shares on Thursday, the bank has since corrected the earlier announcement and claims now to hold just 31m shares - around a 5pc stake - on behalf of unnamed clients and itself.

Previously a Goldman Sachs spokesman had said the shares had been bought on behalf of a client, but had refused to give further details.

The move is expected to prompt inquiries by the Financial Services Authority, the City watchdog. A spokesman for British Energy yesterday said he was unable to comment.

British Energy shares, which have been buoyed this week after a British hedge fund, Polygon, built up a 5.6pc stake in the company, climbed to a new high for the year, closing up 2.75p to 22.25p.

Polygon, which has teamed up with Invesco Perpetual, plans to use their 11.6pc stake to block British Energy's proposed restructuring package that would leave shareholders owning just 2.5pc of the company.

http://www.telegraph.co.uk/money/main.jhtml;sessionid=KOHST5NJPGAKVQFIQMGSM54AVCBQWJVC?xml=/money/2004/07/31/cnbrit31.xml&menuId=242&sSheet=/money/2004/07/31/ixcity.html&menuId=242&_requestid=85919

Polygon, the secretive hedge fund which is fighting for a better deal for British Energy shareholders under the company's proposed financial restructuring, will invoke European human rights legislation if the energy giant does not reconsider its plans.

Polygon's legal advisers believe that British Energy could be guilty of improper confiscation of private property if it presses ahead with a rescue package. The package would give bondholders 97.5 per cent of the company through a debt-for-equity swap.

One executive close to Polygon said: "There are a number of legal avenues open to us, and using human rights legislation is one of them."

British Energy was plunged into financial crisis in 2002 after falling wholesale energy prices left its power stations losing 5m a week.

Shares in the company, which generates a fifth of the UK's electricity, have more than doubled since May to 21.63p on hopes that the restructuring might be revised in favour of shareholders.

Polygon, which holds a 5.6 per cent stake, and Invesco, which owns 6 per cent, have proposed a revised rescue package which would hand back 30 per cent of the new company to shareholders.

As part of the deal bondholders would receive 750m.

But Adrian Montague, the chairman of British Energy, will point out at the annual meeting on Thursday that shareholder approval is not legally required for the restructuring to take place.

The British Energy board is prepared to delist the company if investors do not back the proposed financial re-engineering.

If shareholders do not give their support at a vote to take place this autumn, they will end up with nothing, Montague will say.

Analysts believe the true value of British Energy shares, post restructuring, is about 10p to 12p.

On Friday, Goldman Sachs, the US investment bank, was forced to retract a stock market statement that it had acquired a 15.8 per cent stake in British Energy on behalf of a mystery client.

It gave no explanation for the mistake, and cited "erroneous information".

The European Commission is currently reviewing whether a 5bn bailout of British Energy by the Government breached state aid rules.

It is expected to approve the deal in a formal ruling later this year.

29 July 2004: Polygon plan rallies British Energy
27 July 2004: Court challenge to Brit Energy rescue

Lots of developments this week.

AFX release today :

LONDON (AFX) - Polygon, a hedge fund which has built up a 5.6 pct stake in
British Energy PLC, is set to threaten further legal action against the nuclear
generator this week, The Independent on Sunday reported.
Citing sources close to the fund, The Independent said the hedge fund could
take British Energy to court if its management denies shareholders a better
deal.
Under the proposed restructuring, British Energy shareholders could be left
with 2.5 pct of the equity, with the rest going to bondholders and other
creditors.
Polygon intends to seek further shareholder support at the company's annual
general meeting this week.
"There are clearly legal elements to our strategy. It would be stupid not to
try to strengthen our hand at the AGM. But we want to work with management if we
can," the source was quoted by The Independent.
British Energy supplies around 20 pct of the UK electricity market, which is
worth around 15 bln stg per year. Last month the company warned it still faces
major hurdles if it is to stave off bankruptcy a year after posting one of the
biggest losses in British corporate history.
etain.lavelle@afxnews.com

Today's Sunday Times Newspaper :

August 01, 2004

British Energy bondholders warn investors to back off
Richard Fletcher and Lucinda Kemeny



BONDHOLDERS in British Energy (BE), the struggling nuclear generator, have warned shareholders: block the restructuring and you will get nothing.
Last week Polygon, an American hedge fund with a 5.6% stake in the company, launched a public assault on the restructuring plan after its approach to the board of BE was rejected.



Backed by Invesco Perpetual, an institutional investor with a 6% holding, Polygon hoped BE would reconsider the October 2003 agreement that will leave shareholders with just a 2.5% stake when refinancing is ratified by the European Commission later this year.

But an adviser to an ad-hoc committee of bondholders warned that the actions of the hedge funds threatened shareholders’ hopes of getting anything at all.

“The activities of one or two hedge funds could risk the deal for retail shareholders. If shareholders say ‘no’, the company will still be restructured but the banks and bondholders will take the equity that would have been allotted to shareholders,” he warned.

Bondholders stressed that under the terms of the refinancing deal BE could simply be delisted and then restructured without shareholder consent.

The row at BE is the latest in a number of battles between shareholders and bondholders.

Polygon hopes it can exploit an expected change to stock-market rules which will prevent delisting without a shareholder vote.

The change was not due to come into effect until next year, but it has been brought forward and Polygon wants to capitalise on this.

An adviser insisted the agreement was legally binding and the bondholders, such as RAB Capital, had compromised their claims to keep the generator out of receivership.

“In any normal deal the new bonds and equity would have been released by now,” he said. “It is only because the European Commission process is so elongated that a gap in timing has opened up between the deal being done and the new instruments being issued.”

He said this had allowed speculators in the stock to come in and give small investors false hopes about the future.

Without a renegotiation, analysts believe BE’s shares are worth just 8p, rather than the 22p closing price on Friday.


-----This last paragraph is what I have tried to re-iterate.

Sue Helen

Interesting that you started this thread, I don't think anything has changed since then, (apart from the SP), so why now playing it safe, afterall it has always been and still is a huge gamble. Personally, I can't complain, your initial posting prompted my own buy, (sold last week at 20p), resulting in a 150% profit, so many thanks for that.

Regards

PTH

Hi ptholden...I'm only trying to make it clear as to what the situation is regards to the restructuring. This is because many posters have posted on this thread asking me to provide my views and to keep them updated on developments. Its so that I can answer any questions that posters provide in one go rather than having to answer each request individually.
In addition, if the share price did fall, I don't have to brunt the responsibility which is becoming a common thing on the threads. At this moment, many traders will have a cautious stance hence my cautious stance on these(price is 22 pence now and look where it has risen from (my thread was started at 7.70 pence to buy, you have to take that into account) as I doubt anyone can predict exactly what will happen. One just has to look at the variations in the different press comments during the past week.

I do have a cautious stance for tomorrow and I think the share price may retreat : Two reasons

1. Goldman Sachs RNS after market close on Friday stating that they have not bought the 70 million shares which everyone was led to believe during the week.
They only have an interest in approximately 31 million shares

2. The Times article today.

Polygon have now opened a campaign website "BE-fair" http://www.be-fair.org/

Shareholders can sign an online petition and make themselves known

Recovered some of its losses today having been down over 15.00% in the morning to finish 5.6% down.

Released today :

LONDON (AFX) - British Energy bondholders yesterday told the Financial Times
that shareholders stand little chance of re-negotiating the company's
government-backed rescue plan.
A spokesman for the group of creditors told the paper that hedge fund
Polygon was "picking at mirages" and echoed the company's warning that
shareholders will receive nothing if they fail to back the deal negotiated last
October.
He was speaking after Polygon, which has built up a 5.6 pct stake in the
stricken nuclear generator, reportedly threatened to take legal action this week
to try to secure better terms for shareholders.
Under the proposed restructuring, British Energy shareholders could be left
with just 2.5 pct of the equity, with the rest going to bondholders and other
creditors.
Polygon, which is understood to have secured the backing of Invesco
Perpetual, the UK-based fund manager which owns a further 6 pct stake, intends
to seek further shareholder support at the company's annual general meeting this
week.
It says the rescue plan fails to recognise that wholesale electricity prices
have risen sharply since the agreement was signed, thereby boosting the
company's value.
But British Energy, which supplies around 20 pct of the UK electricity
market, which is worth around 15 bln stg per year, says if it had not done the
deal at that time it would have been forced into administration and shareholders
would most likely have received no return at all.
Last month the company warned it still faces major hurdles if it is to stave
off bankruptcy a year after posting one of the biggest losses in British
corporate history.
rob.branch@afxnews.com

Re : my post last week about the price being outside the upper bollinger band, well the price is right on cue with the upper bollinger band (see below chart). I would expect the price to be blue tomorrow rising in line with the upper bollinger band subject to no news releases.

In my view some compromise will come out of this mess.
If they want shareholders to vote in favour of the bondholders
they must offer slightly better terms. Interesting situation
for speculators and watchers. What say you Sue? fountain of all knowlege?

clips of the interviews Reade Griffiths of Polygon did today on BBC News-24, Radio 5 live and Radio 4 can be found at:http://www.be-fair.org/interviews.asp

The Torment of British Energy
AFX/MoneyAM
Shareholders in British Energy PLC should stop "tormenting" themselves by trying to re-open a "binding" rescue deal in order to win better terms for themselves, Adrian Montague, group chairman, says in a letter in today's Financial Times.

Polygon Investments, a hedge fund that owns a 5.6% stake in the power company, is seeking to improve the terms of the government-backed rescue that would leave existing shareholders owning just 2.5% of the company with options to acquire another 5%. It will press for 30% of the restructured group to be retained by shareholders, at the group's annual meeting tomorrow. Creditors would be paid no more than what they are owed.

British Energy bonds have been trading at about 170, well above their par value of 100. Polygon said this reflected the good deal won by creditors, who will own the bulk of the company under a debt-for-equity swap.

Montague, in the letter to the FT, accepted that power prices had "increased substantially" since the rescue was negotiated but says: "No one contests that there was at the time any alternative to the deal we did. I very much regret the substantial dilution our shareholders will suffer under the deal but the company has survived and they (British Energy shareholders) stand to retain an interest that bears comparison with the position of shareholders in other, similarly reconstructed companies in the London market.

"The deal is binding on British Energy and we are duty-bound to do all we can to give full effect to it. It is not open to the company to change its mind now. There's no advantage in tormenting ourselves by speculating what the outcome might be if we were free to start afresh," he said in the letter.

Press mention : in Today's Daily Telegraph

Energy board sweeps aside protests
By Tessa Thorniley (Filed: 06/08/2004)


Shareholders in British Energy failed to move their board yesterday at an acrimonious annual meeting that was overshadowed by the plans for the bondholders to take control of the company.



Before the Edinburgh meeting, David Gilchrist, managing director of nuclear generation, had announced his sudden departure after 13 years "to seek new challenges". He had been due to become technical director.

Adrian Montague, chairman of Britain's nuclear generator, was accused of using "unreasonable" measures to push through the proposed Government-backed rescue that will leave investors owning just 2.5pc of the shares.

Private shareholders also complained about the extra 150,000 a year Mr Montague is receiving until the restructuring is completed or the binding agreement for the restructuring scheme ends. On completion he stands to receive a further 100,000.

Reade Griffiths of Polygon, the hedge fund which holds 5.6pc of British Energy, told the board: "Not a lot of people here are happy with the deal. The board, I know, has signed binding agreements with its creditors to pursue all reasonable endeavours to ensure the restructuring succeeds. But what is reasonable?"

The directors have indicated that if the shareholders do not approve the scheme, they will cancel the Stock Exchange listing to allow it to proceed, a move that would wipe out their stake in the restructured company.

However, Polygon told the 50-strong group of shareholders assembled at the meeting that the company has a "window of opportunity" at the end of January 2005, when standstill agreements with its senior creditors end, to renegotiate a better deal for investors.

Mr Montague replied: "However enchanting the tune from the bush, we have to assume a bird in the hand is worth two in the bush. If the restructuring is terminated and there is no recapitalisation - such as Polygon has suggested - the company will go into administration."

One private shareholder pointed out that he held "four times the number of shares" held by the entire British Energy board. "It might make the board more than just sympathetic if more than three of them actually held shares," he said.

On current trading, Mr Montague said, "I cannot tell you for certain that everything will go smoothly in the coming months." Last week the group, which supplies Britain with 20pc of its electricity, cut its output target for the current year by over 4pc.

Protests outside included disgruntled shareholders with placards reading "Shareholders want a deal not a steal" and environmental campaigners against the nuclear industry. British Energy shares fell 2 to 19p.

http://www.money.telegraph.co.uk/money/main.jhtml?xml=/money/2004/08/06/cnener06.xml&menuId=242&sSheet=/money/2004/08/06/ixfrontcity.html

Press mention : will appear in tomorrow's Independent Newspaper.

And finally, there was evidence of yet more stake building in British Energy, up 0.75p to 19.25p. No, it was not from Polygon, the vocal anti-restructuring hedge fund, which controls 5.8 per cent of the electricity generator. A Mr Brian J Stark disclosed that he had upped his stake in BE to 37.8 million shares, or 5.9 per cent. In a statement to the Stock Exchange, Mr Stark gave his office address as Wisconsin, USA, but disclosed that the bulk of his holding is controlled by Shepherd Investments, a British Virgin Islands registered vehicle.

Whether, like Polygon, Mr Stark is against the restructuring was unclear yesterday but, should he emerge as so, it would mean that about 23 per cent of the company is controlled by shareholders who oppose the debt-for-equity swap. That is Polygon's 5.6 per cent, Invesco's 6 per cent, whoever is behind the 5 per cent registered in the name of Goldman Sachs and Mr Stark's 5.9 per cent. British Energy, however, is unperturbed by this. It says hedge funds are welcome to build as big a stake as they like in the company but warned that opposition to the restructuring is futile. BE says it will push through with the debt swap with or without shareholder support.

http://news.independent.co.uk/business/analysis_and_features/story.jsp?story=548750

Press mention : will appear in tomorrow's Times Newspaper.

August 07, 2004

Tempus

Price rises can do British Energy a power of good
By Angela Jameson



THE era of cheap energy is over, at least for now. Or so said Adrian Montague, British Energy’s chairman, earlier this week. On that, at least, he and the rebel investors in the troubled nuclear group agree.
Last October British Energy’s bondholders grumbled that shareholders in the near-bankrupt nuclear group had won too much from the Government-backed restructuring plan. Ten months later the shareholders are incensed, saying that bondholders are getting control of the company on the cheap. What has changed in that time? The simple answer is that wholesale power prices have almost doubled and look set to go further. Ofwat, the water regulator, yesterday said that it was factoring a 30 per cent increase in power costs in the next two years into its model for setting price limits. That figure was based on data from Oxera, the economic consultancy, which told water companies in January that prices could increase by 22 per cent to 47 per cent in the near term.



One consequence of these considerable increases is that interest in buying British power stations has revived, with large suppliers such as Scottish and Southern Energy, Centrica and ScottishPower trying to buy more generation capacity to lessen their exposure to volatile price movements. Last week Scottish and Southern bought two of the largest coal-fired power stations in the UK, Ferrybridge in Yorkshire and Fiddler’s Ferry in Cheshire, from the burned US investor AEP in a 250 million deal. Together, the two plants had cost 1.9 billion in 1999.

But the deal was not as straightforward as it seems. Scottish and Southern paid only 136 million cash to buy the plants and 1.6 million tonnes of coal stocks. A further 115 million was paid for “fuel in transit and contracts to supply fuel to power stations”. That means that Scottish and Southern was paying only 76 million for the power stations. The real value of the deal was in the coal.

Coal prices have almost doubled in the past year and analysts in ING, the investment bank, expect them to have risen from €4 (2.64) a megawatt hour to €8 by 2005. Huge demand for coal from China is driving this wild increase.

China emerged only recently on the world scene as a significant coal exporter, driving prices low. Now its own rapacious consumption of the black stuff has tipped the balance and it is back to being a net importer. China’s huge appetite for energy, metals and agricultural products, has tied up nearly all the world’s dry bulk ships and caused blockages in South African and Australian ports. That is why it was such a good deal for Scottish and Southern to buy these two plants — even though the assets do not have much life left in them.

Rising wholesale power prices do not, however, increase the chances that the Drax power station in Yorkshire, Europe’s biggest coal-fired plant, may be sold. Drax renegotiated its 1.2 billion debt last autumn after shunning a sale to International Power, in anticipation that power prices would start to rise. But the giant power station’s hunger for coal still makes its future look bleak, although it has started co-firing wood, which allows it to pick up a renewable subsidy.

Indeed, rising wholesale power prices are not that helpful for electricity suppliers, as was evident from Centrica’s interim results two weeks ago. Few integrated suppliers and generators have enough generation to cover their own customers’ needs and most still need to turn to the market. Small margin increases can sometimes be achieved, but that is not occurring at the moment because spark spreads — the difference between the cost of fuel and the cost of power — have remained constant.

That is why British Energy’s shareholders are right to point out that the nuclear company is one of the best placed to benefit from rising coal and gas prices. Nuclear generators, hydroelectric generators and wind farms will be the main beneficiaries of continuing high power prices. Those include Scottish and Southern, British Energy and ScottishPower, which is the farthest down the wind farm route of all the UK generators.


http://www.timesonline.co.uk/article/0,,748-1206147,00.html

Released today :

LONDON (AFX) - Troubled nuclear electricity generator British Energy PLC
said it has been informed that US investor Brian Stark has bought further shares
in the company, bringing his total holding to 42.84 mln shares.
On Friday, the group said Stark had raised his stake to 37.84 mln shares
from 32.84 mln.
The shares are held by investment companies controlled at least one-third by
Stark, the group said.
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