Massive losses at Areva could trigger dissolution EGM (free content)

3 min read
Robert Smith

Areva announced on Monday that it expects to report a 2014 net loss of about €4.9bn, which could be large enough to force the French nuclear group to convene an extraordinary general meeting to decide if the company will be dissolved.

Investors have been banking on support from the French state, which owns 87% of Areva’s shares but has so far been reluctant to inject fresh capital into the group to shore up its finances.

The company’s bondholders have shown faith in the business’s strategic importance, and Areva’s bonds still trade comfortably above par, according to Tradeweb prices.

“A lot of investors have seen the bonds as cheap exposure to French government risk, but these types of speed bumps could freak them out,” said a hedge fund investor.

“While this would force the state’s hand, it could take longer and act less decisively than many are anticipating. Also, as we’ve seen with the banks, governments are getting savvier around bailing in creditors.”

There is still a long timetable before the state would need to act.

The nuclear group is due to announce its 2014 results on March 4, but released a statement on Monday indicating the size of its expected loss given recent press speculation.

Areva’s articles of association state that if losses recognised in its accounts mean that shareholder equity becomes less than half of the share capital, the company’s executive board has to convene an extraordinary general meeting to decide if the company will be dissolved.

In its last half-year financial report, Areva reported share capital of €1.456bn as of June 30 2014, while premiums and consolidated reserves stood at €2.5bn. Under these figures, a €4.9bn loss would be more than enough to wipe out the premiums and reserves and all of the share capital.

If the EGM resolves not to dissolve the company, Areva would have to reduce its share capital to recognise the losses by the end of the second fiscal year following the reported losses. The only way to avoid this is to build up shareholder equity back to half the amount of share capital.

This could prompt the company to turn to the French state for fresh equity to rebuild its balance sheet.

Areva has so far tried to address its capital issues without support from the state. The company attempted to issue a hybrid bond at the end of last year, but had to withdraw the deal after investors reportedly demanded yields in the 8% range.

Hybrids receive 50% equity credit at the major ratings agencies and are used by companies to protect credit ratings without raising equity. The company lost its prized investment grade credit rating from Standard & Poor’s in November as a result of its failure to sell the bond.

A spokesperson for Areva did not respond to requests for comment.