Electricite de France has a looming hole in its accounts

Nov 01, 2004 01:00 AM

Electricite de France, or EdF, the State-owned power giant that supplies almost a quarter of British demand, needs a cash injection of up to EUR 11 bn (£ 7.7 bn) to repair a looming hole in its accounts.
In submissions to a French government commission, new chairman Pierre Gadonneix said the company would need between EUR 5 bn and EUR 11 bn of new funds to restore its battered balance sheet. That could eat up almost all the funds likely to be raised from a planned flotation.

The new cash would be used to fund pension liabilities and pay for the exercise of options tied to German and Italian subsidiaries acquired during international expansion under former chairman Francois Roussely.
However, the firm may also look to restructure. During recent hearings EdF finance director Daniel Camus is reported to have detailed two strategic scenarios for the cash-strapped power giant that supplies 20 % of Europe's needs.

One option reportedly being considered is the sale of all foreign assets except EnBW in Germany and partnerships in China. Were this to happen, a swathe of British-based businesses could come under the hammer.
As well as owning 10 % of British generating capacity, UK arm EdF Energy provides electricity and gas to more than 5 mm customers through the London Energy, Seeboard Energy, SWEB Energy and Virgin HomeEnergy brands.

Britain is EdF's only consistently profitable foreign operation. The group could also sell its 18.5 % interest in Italy's second largest generator, Edison, together with loss-making activities in Argentina and Brazil. Under this strategy, the company could save EUR 1.8 bn over three years but would still need between EUR 5 bn and EUR 7 bn to restore its balance sheet, Camus said.
But he added that management's preferred strategy was to keep EdF Energy, exit Argentina and Brazil, and take up options over its German and Italian arms.

Lifting its stake in EnBW from 34.5 % to 77 % would cost EUR 12 bn. If EdF's Italian partners exercise options to sell it the rest of Edison next March, EdF would have to stump up an additional EUR 14 bn, Camus said, but would then seek to sell half the business to a partner. Under this scenario, EdF would also aim to sell 33 % of its French power grid company, RTE. But even so, it would need a capital injection of between EUR 8 bn and EUR 11 bn.
The funding shortfall presents a conundrum for French Prime Minister Jean-Pierre Raffarin who, under a law passed this summer, can sell only up to 30 % of EdF, a company worth perhaps EUR 40 bn, in the IPO.

Source: Evening Standard
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