Bond offerings required to fund EDF's Hinkley Point power plant project in Britain are emblematic of macro-economic trends, credit analysts are saying.
The British government in 2012 committed 40 billion pounds ($63.6 billion) to infrastructure projects to give the sputtering economy a boost. EDF is poised to offer $27 billion in project debt to fund Hinkley Point, which represents thousands of construction jobs and hundreds of permanent jobs, as well.
The Office for National Statistics reported British unemployment dropped to 6.2 percent in the second quarter of 2014, down from a peak of 8.1 percent in the second quarter of 2011.
With the slow economy a prime motivator for pushing ahead with Hinkley Point, EDF found itself in an era in which bank lending for large projects has slowed considerably, as turmoil in the banking sector, including high-risk lending, was a primary trigger for the economic downturn.
This put the British government and EDF in the same bind with both willing to move forward in a tough financial environment. The deal approved by the European Commission last week – the government guaranteeing lending and a minimum wholesale price for Hinkley Point for 35 years – put the wheels in motion again.
Banks view nuclear power plants with skepticism even in good times, due to the delays associated with projects that face intense public scrutiny.
Deloitte director for corporate finance Kevin Magner said the deal, which includes the largest backing for a single project ever in Britain, would serve as encouragement for more British nuclear power projects.
The deal is a “highly influential template in the nuclear sector.” Bloomberg News quoted Magner as saying.
CreditSights Inc. analyst Andrew Moulder said the market for Hinkley Point debt will be huge, since it is backed by the government.
That means bonds for the project will be as safe as government bonds, Moulder said.
As such, the financing model could be a deal changer for Toshiba Corp. and GDF Suez SA, as the companies evaluate funding feasibility for a 3.4 gigawatt power plant project for west Cumbria. It could also be the deciding financial factor for Hitachi Ltd., which is developing plans for two plants, one in Wales and one in south Gloucestershire.
EDF is set to build and operate Hinkley Point with help from China General Nuclear Corp. and China National Nuclear Corp., and Areva SA, which would own about 10 percent of the plant.
EDF is expected to own about 50 percent of the power plant.