Areva to Cut Investments to Avoid Ratings Downgrade

 

French state-owned nuclear power group Areva will likely decide this week to scale back investments in order to avoid having its credit rating downgraded to junk status, weekly newspaper Le Journal du Dimanche said.

The paper, citing unnamed sources, said Areva's board is expected to decide on investment and spending cuts on Tuesday, the day before credit ratings agency Standard & Poor's (S&P) is due to decide on its long-term credit rating, which is just one notch above non-investment grade territory.

An Areva spokesman declined to comment on the report and no one at S&P was immediately available.

S&P put Areva on "creditwatch negative" on Sept. 9 and said it would decide on the rating within 30 days.

S&P will submit on Wednesday the conclusions of its credit watch and plans to maintain Areva's investment grade provided the company reduces costs and sells assets, the paper said.

It added that Areva needs two to three billion euros to shore up its balance sheet and that the state, which owns 87 percent of Areva, could either provide a capital injection or push Areva into an alliance with state-owned utility EDF .

A downgrade to junk status could spark a wave of selling of Areva stock as many investment funds are not allowed to hold junk-rated securities. It would also be a huge loss of face for Areva ahead of a major nuclear industry conference in Paris later this month.

Areva shares tumbled 20 percent on Aug. 1 when the group shocked investors by reporting a 694 million euro ($869 million) first-half loss caused by disappointing nuclear revenue, an exit from a solar power business, and a cut in 2014-2016 core earnings and cash flow targets.

Areva Chief Financial Officer Pierre Aubouin said last month that even in the worst-case scenario of a downgrade, Areva had no concerns regarding its liquidity and financing.

Areva's BBB- rating has been hovering above junk status since December 2011, when it was downgraded two notches after Areva booked a 2.4 billion-euro charge for project delays and cancelled orders in the wake of Japan's Fukushima nuclear disaster. (1 US dollar = 0.7990 euro) (Reporting by Gus Trompiz; editing by Geert De Clercq and Stephen Powell)