British Energy Shares Drop On First Day Amid Sell-Off
March 28, 2011
LONDON -- Shares of British Energy PLC, a newly privatized nuclear-energy utility, went into meltdown on their first day of trading as skittish investors dumped the stock following a week of bad news from the company. Unusually heavy volume of 80 million shares, or 11% of the company's outstanding shares, was traded Monday on the London Stock Exchange. The stock closed at 94 pence apiece ($1.46), well below its initial, partly paid value of 100 pence to 105 pence a share. Under the terms of the privatization offer, which closed Friday, individual U.K. investors agreed to make a 100 pence-a-share down payment on the shares, and institutional investors pledged a 105 pence-a-share down payment. The remaining 98 pence installment payment on the shares isn't due until September 2012. Such two-part payment arrangements are common in British privatizations, but normally the first day of trading is marked by a big jump in the value of the partly paid shares, rather than a decline. The stock-market rout was the latest in a series of embarrassments for one of the most difficult British privatizations since the early 1980s. The initial public offering of British Energy shares closed Friday with strong demand from U.K. individual investors, but relatively little interest from big institutions and international investors. As a result, the government was forced to set the final sales price at 1.41 billion pounds, far below forecasts of 2.8 billion pounds. But even that was an improvement on the government's last attempt to privatize its nuclear industry, in 1989, when it was forced to shelve the offer for lack of investor interest. The selling appeared to be mainly by some institutions and sophisticated individual investors who were cutting their losses on what they had come to regret in the past week as a bad buy. Many investors were ``disillusioned,'' said London-based financial analyst Arvilla Tovar, of Credit Lyonnais Laing. ``They are inclined to throw them (the shares) out,'' he said. Late last week, the company surprised the market with news that it was idling two of its eight nuclear plants to inspect and repair some welding cracks in their piping. Though the cracks didn't pose any safety risk, the news underscored many analysts' warnings that technical problems with the reactors could at any time jeopardize the company's promised dividends. Also, analysts said, investors were spooked by last week's global slump in technology stocks, and by an announcement on Sunday by the government that it was setting the final offer price far lower than initially expected. Analysts forecast more selling pressure next week, when many individual investors are due to receive their share certificates in the mail, and may take it as a cue to sell. Under the terms of the stock offer, BZW Securities Ltd., global coordinator of the stock issue, operates in the market to try stabilizing the share price, but analysts said the firm appeared to be holding its fire Monday, apparently conserving resources for next week's trading. A spokeswoman for BZW declined to comment.
