Malcolm Stacey comments on British Energy Relisting
THE BUSINESS - 16/01/05
BRITISH Energy's lenders will make almost £1bn (E1.43bn, $1.88bn)
when the company re-lists on the London Stock Exchange on Monday and
British Energy's debt is exchanged for new shares and bonds. The gain
more than justifies their decision to hold back from pushing the company
into bankruptcy in September 2002.
Banks and hedge funds that bought debt from the creditors are celebrating
some of the most lucrative deals made by so-called "vulture funds",
specialists in buying debt in near-bankrupt companies. Debt investors
have seen average returns of 300% and a total windfall of £300m
to £500m.
The head of distressed debt at a London bank said: "I can't think
of anything offering the same kind of returns in the last five years."
Those who bought at the bonds' deepest lows - 35p in the pound - could
have received five times their investment, investors said. After British
Energy collapsed, the creditors including bondholders, banks and trading
partners agreed to swap the £1.2bn they were owed for £425m
in bonds and 97.5% of new shares.
The package will be worth £2.03bn if the company lists at the 270p at
which British Energy new shares were trading on the grey market on Friday,
valuing the company at £1.6bn, and £2.2bn if it lists closer to their
300p highs.
The biggest winners depending on how much they have sold ahead, are
US-based Duquesne Capital, which receives more than 14% of the newly
listed company, and Deutsche Bank, which gets 10.2%.
The company's creditors have won after a long battle, first with private
shareholders and then with activist hedge fund Polygon, which tried
to force a re-write of the restructuring deal to win shareholders more
than 2.5% in the new company.
Malcolm Stacey, a private British Energy shareholder and director of
the Sharecrazy investor website, said last week: "They didn't take any
risks at all. British Energy could never have gone bankrupt and now
250,000 private investors are left with nothing. If I were a bond-holder,
I wouldn't be able to sleep making money in this way."
But bondholders dismissed suggestions they were profiteering. A distressed
debt investor said: "Back when the bonds were at 35p, this was a company
with almost unlimited liability and electricity prices were in a downward
spiral. This thing was totally toxic."
A London analyst said once it re-lists British Energy will be one of
the few UK stocks with a strong exposure to today's high power prices.
The UK government, which gave British Energy a loan facility of £400m,
now paid back, and took on its nuclear liabilities - which could be
as much as £4bn - seems to have been fairly remunerated. It has the
right to 65% of the company's cash flow, worth some £3.34bn if the equity
is worth £1.8bn, plus £275m in new debt.
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