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The French government is considering whether to revive an ambitious plan to nationalize debt-laden Electricite de France SA and reorganize its business with a focus on nuclear production, people with knowledge of the matter said.
The energy market chaos exacerbated by the Russian invasion of Ukraine is giving fresh impetus to France’s long-mooted push to restructure its biggest power supplier. Officials have been having early talks with potential advisers about the idea of buying out EDF’s minority shareholders and delisting the company from the stock market, the people said.
The government, already the biggest investor in EDF with an 84% holding, would like to keep ownership of the company’s domestic business and may review its international operations. If officials decide to proceed, any plans would only move forward after the French elections, assuming President Emmanuel Macron remains in power, the people said.
EDF could divest stakes in some overseas holdings, including its renewable assets in many geographies, according to the people, who asked not to be identified discussing confidential information. That would raise cash to finance the company’s key nuclear and hydroelectric operations in France. It could also bring in investors to its wind and solar activities to help fund green projects, like it recently did in Italy, the people said.
Deliberations are at a preliminary stage, and there’s no certainty the government will decide to proceed. A spokesperson for the French finance ministry said the information is “false” and the government isn’t working on such a project. A representative for EDF declined to comment.
Balance Sheet
Shares of EDF jumped as much as 9.8% in Friday trading. They were up 5.7% at 4:01 p.m. in Paris, giving the company a market value of 28.3 billion euros ($31.1 billion) and putting it on track to close at the highest level in nearly two months.
EDF announced plans in February to raise 2.5 billion euros through a rights issue as soon as possible, and to sell 3 billion euros of assets by 2024 as it seeks to shore up its finances. Credit rating firms downgraded EDF last month and warned of further potential cuts as the group’s net financial debt — which stood at 43 billion euros at the end of last year — is set to soar as its earnings plunge in 2022.
The company has signaled it will be squeezed this year, with its French atomic output dropping to the lowest in more than three decades due to repairs and maintenance at its fleet of reactors. The situation has been worsened by the French government’s decision to force EDF to sell more power at a steep discount to protect consumers and businesses from soaring energy prices.
EDF has studied other options to raise cash. Last year, it considered a potential sale of part of its 66.5% stake in the U.K.’s Hinkley Point C nuclear project, according to the people. It gauged interest from financial investors before eventually deciding against a divestment, they said.
Nationalization
The French government has long been exploring ways to reorganize EDF.
Since 2019, it’s been considering buying out minority shareholders as part of a restructuring to help fund the lifetime extension of EDF’s aging nuclear plants and invest more in renewables. France and EDF also sought an increase in regulated nuclear power prices to boost the group’s cash flows.
EDF management developed the so-called Hercules plan, under which its nuclear and hydropower assets would be delisted and become fully-owned by the state, and as much as 30% of its renewable, power-distribution and retail operations would become publicly traded. EDF’s unions have opposed that plan, calling it a dismantling of the company.
Hercules stalled in 2021 after more than a year of discussions, as the European Commission — which vets state aid on the continent — asked for deeper separations among EDF’s various entities in exchange for higher regulated nuclear prices.
News on a potential revival of the nationalization idea “may drive positive near-term sentiment for minority shareholders, but should be viewed with caution, we believe, given failed past restructuring attempts,” said Patricio Alvarez, an analyst at Bloomberg Intelligence.
“Though a move to de-list the nuclear unit and perhaps spin off its network and renewables arms holds sound rationale, the stalling of 2019’s Project Hercules sets a precedent for slow-moving regulatory hurdles,” Alvarez wrote in a note Friday. “We don’t expect any changes prior to the French presidential election.”
European Approvals
A revamped nationalization plan involving higher regulated prices for EDF would still require the approval of the Commission, which could take months. EDF Chief Executive Officer Jean-Bernard Levy said last month that a package of measures and regulations to support the cash-burning company will be one of the top priorities for any government that will emerge after April’s presidential elections.
Macron, meanwhile, has pledged tens of billions of public financing to help EDF build as many as 14 new reactors by 2050. France will work with the Commission to introduce a new regulation for nuclear power to provide stable prices for French consumers and companies, Macron said in February.
EDF traces its roots back to 1946, when France created a state electricity monopoly to clean up a highly fragmented market that had over 1,000 companies involved in some element of power generation, transmission or distribution. The country’s first nuclear power station started operations in 1963, and EDF made a push to rapidly expand its nuclear generation amid the oil crisis a decade later.
France started deregulating the electricity market in 2004 and listed EDF on the stock market the next year.
(Updates with analyst quote from 14th paragraph.)
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