British Energy proceeds slip further

The Government's proceeds from the sale of the nuclear industry slipped further last night, as sources close to the company denied that the disappointing outcome was a result of City reaction to the unexpected closure of two reactors on Tuesday night.

BZW, the investment bank handling the sale of British Energy, is likely to value the shares on a fully paid basis between 200p and 210p rather than the range of up to 230p expected a few weeks ago, valuing the company at only pounds 1.4bn.

The latest estimates are a slippage of pounds 100m even from midweek expectations and are at the lower end of the pounds 1.26bn- pounds 1.96bn valuation put on the company in the prospectus.

But vigorous efforts were being made to distance the slippage in the likely price from the reactor closures. The reduction in the expectations of the Government's advisers was said to be a result of further analysis of the detailed make-up of the offers, 95 per cent of which lie within the 200p to 230p price range.

The cover - the total value of the offers as a multiple of the value of shares available - is not thought to have fallen in recent days.

But City sources suggested that some highly respected institutions that British Energy would like to have on its share register made offers at the lower end of the range, and to include them means accepting a slightly lower price.

A "grey market" in British Energy shares quoted by the financial bookmaker IG Index yesterday put the shares at 105p, compared with a first instalment to be paid by private investors of 100p and for institutions 105p. Earlier in the week the IG Index priced the shares 10p higher.

The announcement of the reactor closures on Wednesday, two hours after the public share offer closed, led to accusations by the Labour Party of "organised deceit''.

Tim Eggar, the energy minister, yesterday strongly rejected the accusations and said the shutdowns were "a tremendous tribute to the importance the nuclear industry attaches to safety".

The surprise closure of one reactor each at Hunterston B in Scotland and Hinkley Point B in Somerset brought each of the twin reactor stations to a standstill. A reactor had already been closed at each station in a search for defective welds.

Analysts said the closures highlighted the volatility of British Energy's profits, which are closely related to output. BZW has published estimates showing a 5 percentage point variation in annual output from the company's eight power stations which knocks about pounds 700m off its value.

"British Energy only makes money when the plants are running," said one analyst.

Another factor affecting profits will be the "pool" price for wholesale electricity, where a 0.1p movement triggers a pounds 61m hit in profits before tax, according to Nigel Hawkins, analyst at Yamaichi.

But the Government has offset the risks with an attractive dividend policy, kicking off with a guaranteed 13.7p payout ahead of the second payment for shares, due in September 1997.

Labour is already committed to a windfall tax on utilities in its first year of office.