April 15, 2019 / 12:05 PM / 3 months ago

EDF shares jump on hopes re-nationalization will unlock value

PARIS (Reuters) - EDF shares rose as much as 4.3 percent on Monday on hopes that a partial re-nationalization of the French utility will unlock value and ring-fence EDF’s capital-intensive nuclear activities from its renewables and grids.

FILE PHOTO: The logo of EDF (Electricite de France) is seen on the French state-controlled utility EDF's headquarters in Paris, France, February 15, 2019. REUTERS/Charles Platiau/File Photo

The strategy committee of EDF’s board will review a restructuring plan for the 83.7 percent state-owned group on May 28, French daily Le Parisien reported, adding that this would be followed by presentations to a group of 200 top managers on June 7 and to union representatives on June 20.

A source familiar with the situation confirmed these dates.

EDF declined to comment.

The French government has for some time been looking at how to restructure EDF to isolate its volatile nuclear business from the pressures of a stock market listing and provide a boost to the rest of the company.

It wants to return EDF’s nuclear operations to the public sector but does not necessarily want to buy out minority shareholders in EDF’s other business activities.

EDF operates 58 nuclear reactors which produce about 75 percent of France’s electricity. But the company has been hit by safety outages at dozens of its nuclear plants and has faced billions of euros of cost overruns on a nuclear construction project.

The company also requires massive investment of some 55 billion of euros to upgrade its aging nuclear plants.

The paper said the plan - codenamed Project Hercules - would be likely to involve the creation of a new holding company owning EDF’s nuclear activities and wholesale power sales, and possibly also its hydropower plants.

This would allow EDF to ring-fence the financial risks associated with nuclear energy from financial markets.

The French government said in November it would consider increasing the state’s stake in EDF and possibly create a new parent company with subsidiaries.

It was not immediately clear whether EDF’s reactor building business Framatome, formerly called Areva, and its nuclear reactors in Britain would also be held in a separate nuclear division.

The paper said the new parent company may not be wholly state-owned, because of the high cost of renationalizing it.

EDF has a market value of 41 billion euros ($46 billion), but trades on a price/book ratio of just 0.82, making it the most undervalued share in the Stoxx European Utilities index by that measure.

The paper quoted an unnamed source as saying that the state would hesitate to buy out minority shareholders, as it would cost “a fortune”, or about 6 to 8 billion euros for 15 percent.

Jefferies wrote in a note that this estimate implied a 12.5-16.6 euro per share buyout price and that the midpoint of this range implied a 20 percent premium to the current share price.

UBS analyst Sam Arie said he expects that a restructuring of EDF will create two balance sheets, with potentially an IPO of a ‘NewCo’ similar to the IPO of innogy from within Germany’s RWE.

“If there is a renationalization of EDF Group, including the nuclear fleet, we expect that would come at a premium for EDF’s minorities,” he said.

The paper said the new parent company would also hold a majority stake in a second holding company which would own some other EDF subsidiaries such as retail power sales, grid units RTE and Enedis. Enedis may partially open its capital to private investors, it said.

EDF chief executive Jean-Bernard Levy said in February the government had asked him to make restructuring proposals by the end of 2019.

Le Parisien said financial institutions including Société Générale, JP Morgan, UBS, Oddo and Natixis were working on several restructuring scenarios,

Reporting by Geert De Clercq; editing by Richard Lough and Jane Merriman

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