utility giant refocuses operation with northern ireland electricity supply deal and expects sale of ailing, unprofitable phone service 'thus'
ScottishPower, the UK's biggest electricity company, has begun selling electricity to Northern Ireland utility Viridian Group following the completion of an underwater cable linking Britain and Ireland.
In the 12 months to 2 January, ScottishPower shares were down just over 23%, though they were up 0.77% over the three months to 2 January.
ScottishPower will supply Viridian with 125 megawatts of generation over the next 70 months, the Scottish utility announced.
The new link, which began operations last week, had been under consideration for more than a quarter of a century. The present project was agreed in 1991. ScottishPower built 64 kilometres of undersea cables while Viridian built 60 kilometres to link Northern Ireland and Scotland.
The news comes as Scottish Power cancelled a plan to sell its water company, Southern Water, and instead will seek at least £1.8bn from bond investors to revamp the business.
Investors expect the company to revamp the business by selling asset-backed bonds during January, backed up by its future revenue, including consumer payments.
The financing is likely to take a similar shape to Glas Cymru Cyfyngedig, a bond-financed company that runs Wales' water utility, said Bernard Hunter, Merrill Lynch Investment Management's head of investment-grade research.
Further restructuring plans are under consideration at ScottishPower including the possibility that it may spin off its majority stake in unprofitable phone unit Thus, exiting the business after seven years of investment, a plan that surfaced late last year.
To bail out Thus before the possible spinoff, ScottishPower will buy shares in the unit worth as much as £275m, it said in a statement.
ScottishPower founded Thus in 1994, seeking to boost profits by adding telecommunications to its main electricity business. It reaped £1.1bn from the sale of a 49.9% stake in 1999, though the shares have since fallen more than 80%, leaving Thus with a market value of £392m.
'ScottishPower is refocusing around power,' said Andrew Whalley, who manages the LeggMason International Utilities Trust and owns no ScottishPower shares. The company has 'a very stretched balance sheet' and wants to make acquisitions, he said.
European utilities, with the exception of Italy's Enel SpA, are withdrawing from the phone industry after failing to compete with bigger rivals such as Vodafone. RWE AG and E.ON AG of Germany sold most of their telecoms holdings two years ago.
'It's a mildly positive step,'' said Martin Brough, an analyst at Dresdner Kleinwort Wasserstein, who rates ScottishPower an 'add'.
'It addresses concerns they were going to inject more cash into Thus and provides a clear exit route.'
Including the share sale, ScottishPower has invested a total of £600m in Thus, whose customers include Microsoft, Compaq and the US Embassy in London. Thus, which also owns the Demon internet service provider, lost £21.1m in the three months to September.
The Glasgow, Scotland-based utility will underwrite the issue of about 573 million new shares priced at 48p each.
The phone company has also agreed a £90m credit line with Royal Bank of Scotland, SociÃ©tÃ© GÃ©nÃ©rale and Toronto-Dominion Bank, making it fully funded until it reaches profitability before the end of 2004, Thus said.
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