UK's Sizewell C Nuclear Plant Secures £12.5 Billion Loan Amid Election Uncertainties

Key Takeaway

• Sizewell C nuclear plant secures a £12.5 billion loan from HSBC, NatWest, and Santander amid election uncertainties.
• UK aims to quadruple nuclear capacity by 2050; project cost estimated at £20 billion with a decade-long completion timeline.
• Thames Water debt talks stalled due to election; potential nationalization if financial pressures persist post-election.

Sizewell C Financing Progress

The developer of the UK's Sizewell C nuclear power plant is advancing efforts to secure financing for the project this year, despite the potential complications posed by an upcoming general election. A consortium of banks, including HSBC Holdings Plc, NatWest Group Plc, and Banco Santander SA, has offered to lend up to £12.5 billion ($15.9 billion) to support the plant's construction in eastern England, according to a source familiar with the matter. This debt will be part of a larger multibillion-pound funding initiative that also seeks equity from private investors.

Prime Minister Rishi Sunak has called for a general election on July 4, with his Conservative Party currently trailing in the polls. Regardless of the election outcome, the financing deal for Sizewell C will be finalized under a new government. A spokesperson for Sizewell stated, "The two main political parties are committed to Sizewell C and we are carrying on with the capital raise, preparing for a final investment decision and mobilizing teams on our site," but declined to comment on the specifics of the debt.

The UK aims to quadruple its nuclear power capacity and significantly expand offshore wind farms to eliminate fossil fuels from the electric grid and achieve net-zero emissions by 2050. The Sizewell project, owned by the government and minority stakeholder Electricite de France SA, is estimated to cost around £20 billion and take approximately a decade to complete. The government had aimed to reach a final investment decision on the 3.2-gigawatt Sizewell C station within the current parliament, with the final stage of fundraising potentially being one of Labour leader Keir Starmer's first actions if he becomes prime minister. Starmer has previously emphasized the importance of advancing the project, stating, "Sizewell needs to move forward at pace. New nuclear has to be part of that mix."

Real Estate Market Concerns

The announcement of a snap election in July has introduced new uncertainties for UK property investors, already grappling with high interest rates, persistent inflation, and planning bottlenecks. At a recent conference in Leeds, attended by approximately 13,000 delegates, political campaigning was prominent, with Labour Party leaders advocating for increased housebuilding to address the nation's chronic housing shortage.

Labour's deputy leader Angela Rayner and Greater Manchester Mayor Andy Burnham emphasized the need for a new generation of towns to tackle the housing crisis. Burnham stated, "If we go at it together, we could significantly loosen the grip of the housing crisis in the next parliament," while Rayner's call to "let's get Britain building again" received strong support. Labour's polling lead over the Conservatives has heightened investor interest in the party's housing pledges, including a promise to build an average of 300,000 homes annually during its first term. However, some market participants remain skeptical, with Savills Plc predicting only about 160,000 private homes will be completed annually between 2025 and 2028 due to planning hurdles.

Emma Cariaga, head of residential at British Land Co., highlighted the challenges posed by regulatory uncertainty, stating, "Uncertainty has a price to it. The trajectory of rates has been a big challenge for the sector, and investors prefer clarity on regulation." Some attendees viewed the snap election as a potential catalyst for accelerating policy decisions and reducing regulatory uncertainty. Sophie Rosier, a director at Savills, noted, "Investors are itching to get on with things, so they just want to know now." However, concerns about Labour-imposed rent caps persist, with Rob Mills, a partner at fund manager Clearbell Capital LLP, warning, "Investors are really spooked by the chance of rent controls. Raising rents is a crucial inflation hedge that investors rely on."

Thames Water Debt Talks Stalled

Debt negotiations between Thames Water Ltd.'s parent company and its creditors have been effectively halted following the announcement of the general election. Creditors to Thames Water Kemble Finance Plc, the holding company for the UK's largest water utility, had appointed Moelis & Co. and Freshfields Bruckhaus Deringer to manage the talks, but discussions cannot proceed without a business plan, which is now unlikely to be finalized before the election.

Ofwat, the water regulator, is scheduled to meet to make draft determinations on the next five-year price review (PR24), which will evaluate bill-hike proposals from water companies, including Thames. These companies argue that higher prices are necessary to invest £100 billion ($127 billion) to address sewage spills, chronic leaks, and climate change impacts by 2030. Thames Water has been seeking more favorable terms for raising equity and paying dividends.

Ofwat's draft decisions, initially planned for June 12, are now expected to be delayed until after the election due to rules prohibiting government bodies from making announcements that could influence the election. This delay could exacerbate financial pressures on Thames Water, which is depleting a £2.4 billion funding reserve while seeking new equity investors. If the reserve is exhausted, the company may need to be temporarily nationalized by the government.

Moody's Ratings recently downgraded Kemble's credit, stating that creditors are unlikely to take action until there is more clarity about Thames Water's finances. Thames Water and Kemble entered crisis mode in March after Ofwat officials indicated that Thames's business plan proposals were unlikely to be accepted. Shareholders subsequently declared the plan "uninvestible" and refused to inject additional equity, leading Kemble to default on its debts and enter talks with creditors. Ofwat's draft determination was expected to provide a public assessment of Thames's business plan, with a green light allowing for essential upgrades and a rejection potentially leading to temporary nationalization.

Street Views

• Keir Starmer, Labour Leader (Bullish on Sizewell C):

  "Sizewell needs to move forward at pace. New nuclear has to be part of that mix."

Management Quotes

• Spokesperson for Sizewell:

  "The two main political parties are committed to Sizewell C and we are carrying on with the capital raise, preparing for a final investment decision and mobilizing teams on our site."