Areva may have negative credit rating

Paris - French nuclear group Areva could find its investment grade credit rating under threat after warning of lower sales last week, which upset the assumptions of the only agency that rates its debt.

Areva's long-term issuer rating from Standard & Poor's has been at BBB-, just one notch above junk status but with a stable outlook, since December 2011, when it was downgraded two notches from BBB+ after booking a €2.4bn charge for project delays and cancelled orders in the wake of the Fukushima nuclear disaster.

Credit analyst

But that stable outlook could be cut to negative after Areva shocked investors on Friday with a €694m loss caused by disappointing nuclear revenue and a write down on its surprise exit from solar power. It also cut its revenue forecast and admitted its long-held ambition to sell 10 nuclear reactors by 2016 was no longer achievable.

Its shares fell 20%, their worst fall since Areva was formed in 2001.

"The below-expectations results and the downwards revision of its guidance are not in line with our assumptions for the company," said S&P credit analyst Lucas Sevenin, adding that S&P would focus on these topics in its discussions with Areva management.

A downgrade could not only push up its borrowing costs and constrain its access to funding, but could also spark a wave of stock sales as many investment funds are only allowed to hold investment-grade stocks.

At S&P, a stable outlook indicates that there is a less than one-in-three probability of a downgrade or upgrade within the next two years, but a change in its outlook means S&P is likely to change its rating within two years.

Nuclear reactors

Areva stock plunged in April after the firm posted nearly half a billion euros in losses following write downs on its Olkiluoto 3 reactor in Finland, whose construction is years behind schedule and billions over budget.

"Currently our assumption is that we are not going to see further major items on Olkiluoto, but it remains an area of risk," Sevenin said.

The S&P analysts said the outlook for Areva was not very positive in the short term, given the weak demand for nuclear new-build following the Fukushima disaster and the decision of many governments to idle or phase out nuclear reactors.

He added that a major reactor building programme in China would be a positive factor, but not for some time."In the long term we expect nuclear capacity to increase, but in the short term we expect the environment to remain challenging," Sevenin said.