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EDITIONS
Friday, 14 February, 2003, 18:30 GMT
British Energy saved from the brink
British Energy coal fired power station at Eggborough
Falling energy prices have hit British Energy hard
The struggling energy giant British Energy (BE) has agreed a last-minute rescue deal with its creditors, saving it from administration.

The agreement will allow BE to stay in business, after months of negotiations.

Today is a significant milestone in the restructuring of British Energy

Adrian Montague, British Energy chairman

The government has also agreed to extend its credit facility to the firm at a reduced rate.

"The government, creditors and shareholders have shown a tremendous determination to secure British Energy's future," said the chairman Adrian Montague.

Long road

British Energy is the UK's largest electricity generator, supplying a fifth of the UK's electricity needs.

But it is struggling to stay afloat amid falling power prices and rising debt levels.

It is just one step along a road which may take another eighteen months

Adrian Montague

Failing to agree its refinancing package would have left the company with little alternative but insolvency and possible government control.

British Energy's future has been on the line since September when the government was forced to bail the company out with an emergency loan.

But Mr Montague said this eleventh hour deal was only the beginning.

"Today is a significant milestone in the restructuring of British Energy.

"But it is just one step along a road which may take another eighteen months."

Swapping debt

Under the agreement, BE's bondholders will reduce their debt in return for a large stake in the company.

British Energy shares have plummeted in the last year

Ordinary shareholders, however, including many of BE's 5000 staff, will be left with a stake worth substantially less than before.

British Energy shares have collapsed from 220p a year ago to their closing price on Friday of 6.25p.

The energy firm said it would hold an emergency general meeting for shareholders on 10 March to allow them to vote on final approval of the deal.

The trade secretary Patricia Hewitt said it welcomed the progress made by British Energy but that "hard work" was needed to complete it and that administration was still a possibility.

The government is also seeking approval from the European Commission to extend its loan repayment date from 9 March.

Brinkmanship

The market had been widely expecting BE to reach such a deal.

Tony White, a member of the energy advisory panel, told BBC Radio 4's today programme that the negotiations were more about "who would blink first".

Mr White suggested it was "difficult to see who else would run the nuclear power stations", in the event of BE going bust.

He also suggested it may not be in the interest of creditors to give up on the company completely.

"If it goes into administration, they lose any benefit of investments British Energy has in North America."

Long wait

British Energy has been badly hit by the increased competitiveness of the UK's wholesale electricity market.

More players has forced down prices and exposed the fact that many plants were being run inefficiently.

However, while many operators also have a retail arm allowing them to make up profits, BE has not.

"Prices will go up, but it could be in many years time" said Mr White.

In the meantime, BE isn't making any money.

"It's a question of how much this company is worth now when you know it isn't going to make any profit for a long time."

See also:

28 Nov 02 | Business
23 Jan 03 | Business
27 Nov 02 | Business
22 Nov 02 | Business
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