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S&P lowers outlook on EDF due to nuclear project cost overruns, delays

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S&P lowers outlook on EDF due to nuclear project cost overruns, delays

S&P Global Ratings revised its outlook on Electricité de France SA to negative based on cost overruns at nuclear projects likely to lead to increasing capital expenditure, debt and "reduced financial flexibility."

The state-owned French utility has announced cost overruns of between £1.9 billion and £2.9 billion on the new Hinkley Point C nuclear plant in the U.K., with the overall budget expected to rise to between £21.5 billion and £22.5 billion.

Additionally, EDF's Flamanville EPR nuclear project has been postponed three years following the detection of eight faulty welds. The delay in the project will add €1.5 billion in extra costs.

"We believe the ongoing complex new nuclear builds contribute to the group's deeply negative free operating cash flow (FOCF) and that associated costs overruns exacerbate the company's rising debt trajectory," S&P Global Ratings analysts wrote in an Oct. 10 research update. "In addition, the cash flow contribution from these assets remains some way off, and we still have uncertainties regarding their value creation potential in case of further woes during the construction life."

S&P Global Ratings' long-term issuer credit rating for EDF is A-. The agency expects the group's adjusted funds from operations-to-debt will stay at about 19% and debt-to-EBITDA will remain in the range of 4.5x.

"In our view, profound structural changes in the French market are needed to eventually reposition the economics of EDF's French nuclear fleet," S&P Global Ratings analysts wrote. "We understand a structural regulatory reform that is positive for EDF's nuclear operations will take time and will need to be agreed with the European Commission," progress on which is not likely to occur until the first half of 2020.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.