THE MORE distance British Energy puts between itself and the financial meltdown which engulfed the company 18 months ago, the more questions are asked about the restructuring imposed on the nucleargenerator by the Government.
Just to recap, the rescue package ended up in a massive debt-for- equity swap which left shareholders with just 2.5 per cent of the company and transferred pounds 4bn of liabilities to the taxpayer. Bondholders and banks inherited the remaining 97.5 per cent of the shares in return for promising to exchange their bonds for paper in the new company.
The fact that those bonds are now trading well above their face value would seem to suggest that shareholders were shortchanged. Certainly that’s what the US hedge fund Apaloosa Investment Management must think. Apaloosa has emerged with a 4.56 per cent stake in the company amid suggestions that it may try to re-open negotiations with the Government to secure a better deal for shareholders.
The effect on the share price has been electrifying. Since Apaloosa disclosed its stake last Friday the shares have doubled in price. Yesterday a fifth of the company changed hands. Did Apaloosa use the opportunity to bank its profit? Or has the US hedge fund increased its stake even further? And how realistic is another renegotiation of the terms so late in the day?
Shareholders have no leverage to interrupt the restructuring agreed between the Government, the company and its creditors. Voting down the deal would merely result in them losing what little equity they have left in the business. It is worth remembering too that for all the hype and hope attached to the share price in recent days, the Government will snatch 65 per cent of all future free cash flow if and when the rescue deal is finally approved in Brussels.
Private investors will have piled into the stock these past few days to judge by the volume. They may be sorely disappointed.
