November 28, 2014 / 2:25 PM / 5 years ago

Areva's options narrow in shadow of debt refinancing

* French nuclear group seeks to extend debt maturity

* Access to markets seen trickier after ratings downgrade

* New management to present strategy plan by end of Feb

* Mining, nuclear fuel units could interest Asian partner

By Geert De Clercq

PARIS, Nov 28 (Reuters) - With big bond repayments due in 2016-17 and its credit rating cut to junk last week, France’s loss-making nuclear group Areva has a narrow and shrinking window to turn around its business and refinance its pile of debt.

With billions of capital destroyed by writedowns on a Finland reactor project and an African uranium mine and its revenue crimped by a post-Fukushima dearth of reactor orders, Areva lacks the earnings to repay debt and is seeking to delay payment by extending its bond maturities.

The 87 percent state-owned firm has already cut spending and investment to the bone and has few assets left to sell, while a capital increase has been ruled out for now.

In March, Areva issued a 750 million euro bond maturing in 2023 with a coupon of 3.125 percent, but its standing with investors has deteriorated since.

An attempt to issue a hybrid last month failed as investors sought yields up to 8 percent, and that was before the S&P downgrade. The going rate on 10-year debt for healthier French state-backed corporations is less than 2 percent.

“It’s going to be very tricky for Areva to access the markets in the near term, and they won’t unless they absolutely have to,” said an Areva bondholder who declined to be identified.

Incoming Chief Executive Philippe Knoche says Areva has no liquidity problems “in the short term”. At the end of June, Areva had net cash of 2.3 billion euros and undrawn credit lines over 2 billion. When Standard & Poor’s downgraded Areva, it gave one notch extra for its “high cash cushion”.

However, some analysts expect Areva will post a 2014 loss of about 1 billion euros, following a 694 million first-half loss.

ASSET SALES

On Sept. 23 2016, a 1.25 billion Areva euro bond comes due, which accounts for about a fifth of its 6.26 billion euros ($7.8 billion) of bonds outstanding, Thomson Reuters data shows. By Oct. 2017, another 900 million euro bond matures.

Some analysts say Areva, whose market value has halved to 3.8 billion euros this year so far, needs a 1.5-2 billion euro capital increase, but the government is ruling that out for now. A scenario of ringfencing legal claims related to contract troubles in Finland into a “bad bank” type entity has also been discarded, a source familiar with the situation said.

Incoming Chief Executive Philippe Knoche will present a strategic plan in February, before Areva publishes its 2014 accounts. The firm has already announced 450 million euros worth of asset sales by 2016, but has few major non-core assets left to sell, except its loss-making offshore wind unit.

To raise money, incoming board Chairman Philippe Varin - who saved carmaker Peugeot by bringing in a Chinese shareholder - could again eye a Chinese alliance.

Knoche told parliament this week Areva wants to accelerate partnerships with companies in Asia. The firm already works with Japan’s Mitsubishi Heavy Industries, with which it is designing a new reactor model.

China’s CGN Power, which is building two EPR reactors in China and will invest in a project to build two more in Britain, is another potential partner.

Analysts doubt anyone would want to buy into Areva’s loss-making reactor division, tainted by cost overruns. But its uranium mining and nuclear fuel divisions - accounting for most of the company’s 1.04 billion euros 2013 core earnings - would be attractive, particularly for China, which is keen to secure uranium supplies for its growing nuclear fleet.

1 US dollar = 0.8010 euro Additional reporting by Laura Benitez in London; Editing by Andrew Callus and Pravin Char

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