Faced with a sluggish credit market, debt of about €24.5 billion ($34 billion) and question marks over planned asset sales, Europe's biggest utility Electricité de France SA has taken the unusual step of turning to "les citoyens" of France for new funds.
The Paris-based utility on Wednesday launched a €1 billion retail bond sale targeted at French savers, the first of its kind for almost a decade. The bonds, which will be on sale until July 10, will pay an annual 4.5% interest and will mature in five years.
Money raised from the sale will be put toward €7.5 billion of investment in French infrastructure, said EdF, inviting savers to "contribute to the biggest industrial investor" in France. It is a line that will play well with some patriots, but others may realize that what they are in fact financing is EdF's recent expansion outside of France.
The French utility has spent big over the past year, buying control of the U.K.'s nuclear energy sector with the £12.5 billion acquisition of British Power Group plc and grabbing a foothold in the U.S. with the $4.5 billion acquisition of a 49.99% stake in U.S. energy company Constellation Energy Group Inc. (NYSE:CEG).
Those investments should drive growth in the long term, not least by diversifying EdF's earnings away from the saturated and highly regulated French energy sector. However, in the shorter term, they require huge investment. British Energy needs about €15 billion to €20 billion of investment to overhaul its aging nuclear reactors, analysts estimate.
EdF's ability to fund that investment is hampered by its €24.5 billion of debt. The utility hopes to reduce that pile by offloading assets such as its British energy grid, which could fetch about $4.6 billion, though analysts have suggested it could struggle to find a buyer. In the meantime, it is also keen to tap new sources of debt with maturities that more closely match the demands of its investments. Hence the bond sale.
EdF's chief executive officer Pierre Gadonneix said Wednesday that the sale could become an annual event if it proves popular. The company appears to have left little to chance in pricing the sale. The yield of 4.5% is superior to EdF's most recent, comparable institutional placing, which carried a yield of 3.5% for instruments maturing in 2014. It is also significantly better than most French savings accounts, which are paying between 0.5% and 1.75%. -
Paul Whitfield
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