A nasty stasis in shares in E.ON, RWE and EDF at pixel time:
That’s as markets absorb the German government’s suspension of plans to extend the lifespan of nuclear plants in the country. Which might have put around a third each of RWE’s and E.ON’s 2011 clean net income at risk, according to a Goldman estimate on Tuesday.
Thing is — the extension was being considered in return for taxes that are themselves pretty big hits to income, so a lot depends on whether these are renegotiated. It’s not a clear picture. Credit risk among these companies looks heightened but not in the danger zone yet, according to data provided by Markit:
Couple that with the somewhat, er, Kurzschlussreaktion we’ve seen and we wonder if the effects of a European halt to nuclear power will be less on the utilities in any one country…
…and a lot more on uranium miners, everywhere, given the implications of an overall slowdown in extending the west’s comprehensive legacy network of nuclear power stations.
Here’s a chart from the miner-heavy London market to ponder (via Reuters):
And falling. Much of it at pixel time seemed like pure risk-off panic, but… long past time to consider the uranium-fossil spread, indeed.
Update — Germany announced it would be shutting seven reactors built after 1980 for the duration of the three-month suspension: 17 reactors built after 1980 remain online. Still, amongst the reactors now offline: Biblis A, accounting for 21 per cent of RWE’s nuclear capacity according to Goldman, and Isar I, which is a big plant for E.ON.
Meanwhile, returning to credit risk for both utilities, Citi made interesting points on what we might be missing on Tuesday:
German utilities – Balance Sheet the big risk
The possible closure of their nuclear plants would leave EON and RWE with much shortened remaining life in their generation fleet (10-13 years) and far less stable and predictable source of cash flow. EON and RWE had to embark recently on disposal programs to shore up their balance sheet to bring gearing below 3x net debt / EBITDA. We remind that both utilities used to target much higher gearing ratios but the change of the business model towards more commodity-driven assets has brought that down.
We now see a material risk of the closure of the nuclear plants with the resulting reduction in asset life and cash flow visibility and stability will lead the credit agencies to request even lower gearing ratios for the same credit ratings…
Related links:
Nuclear power halted in its tracks – FT
Spent fuel leakage confirmed at Fukushima – FT Alphaville
The state of uranium – FT Alphaville (2009)