French utility EDF is considering selling its British power grid to help it pay for take-overs and new power plants, the Financial Times reported on Monday, citing sources close to EDF's board. EDF is considering a sale of the grid, estimated to be worth some 3 billion pounds ($4.46 billion), after debt rose to nearly 25 billion euros and as it plans billions of euros of investments in costly nuclear power plants, the paper said.
No decision has been taken on the possible change of strategy to focus only on power generation outside France, the daily said. EDF, the world's biggest single producer of nuclear power with a market capitalisation of $85 billion euros, declined to comment. "This (idea of selling the grid) is not completely silly given EDF's strategy to focus on nuclear production," said an analyst based in Paris who asked not to be named. "This is not an easy sale. Look at other utilities, like Vattenfall, which are struggling (to sell their networks)," the analyst said.
Swedish utility Vattenfall is having difficulty selling its long-distance electricity grid in Germany, Europe's largest power market, and had to admit last week that the sale has been slightly delayed. A sale by EDF would help it meet its target to cut its debt by at least 5 billion euros by the end of 2010, after the recent acquisition of British Energy and half of Constellation Energy's nuclear business.
It would also help EDF pay for as many as two nuclear reactors in France and several others in Britain, where the government is seeking investors to rebuild the country's power plants. Analysts estimate the network, which ships power to nearly 8 million homes and businesses, could be sold for between 3 billion and 5 billion euros. It generated core earnings of 700 million euros in 2008.
EDF would struggle to find a buyer given current market conditions and the regulatory regime. The British power grid is overseen by Ofgem, which regulates the country's power and gas markets. In Britain, EDF runs the electricity distribution networks for London, and the east and south-east of England.
The three networks had a combined regulated asset value (RAV) of 3.505 billion pounds as of March 2008, according to provisional figures from Ofgem. Before the credit crunch, similar assets could command a premium of perhaps 30 percent to their RAV but bankers question whether such premia are still achievable.
Infrastructure funds have expressed some interest in acquiring EDF's distribution networks, a person familiar with the matter said recently. The British power market was the first in Europe to be liberalised, and divesting the power grid would mean that EDF focuses on the more risky power generation and power sale business in a country where customers switch suppliers more often than in other EU countries. EDF shares were up 0.5 percent at 35.49 euros by 1506 GMT, lagging the DJ Stoxx European utility sector which was 2.4 percent higher.
When comparing earnings before interest, taxes, depreciation and amortisation (EBITDA) to debt, EDF has less debt than other large European utilities. E.ON, Europe's largest utility by sales, generated an adjusted EBITDA of 13.4 billion euros, compared with an economic net debt - which includes pension and nuclear liabilities - of 45 billion euros. Italian peer Enel posted a 2008 EBITDA of 14.3 billion euros on debt of 49 billion euros.
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