Urenco powers up pace of sell-offs

Saturday, March 30, 2013

Much has been written about government plans to privatise Royal Mail in the biggest such deal since the railways were sold in the 1990s.

Yet, another large state asset has moved on to the auction block, with much less fanfare. The low-key plans to sell Britain's one-third stake in Urenco, the uranium enrichment company, for up to £3bn, in part reflects the sensitivity of its activities.

Urenco is one of only four companies globally that supply enriched uranium to nuclear power plants and commands almost 30 per cent of the market.

Security risks long made Britain and its co-owners - the Dutch government and the German utilities RWE and Eon - wary of selling the company.

Pakistan's nuclear weapons programme owes much to expertise acquired by A.Q. Khan, the Pakistani scientist, when he worked for Urenco in the 1970s, highlighting the proliferation concerns surrounding the industry

Yet the government believes safeguards can be placed on privatisation that would allow it to maintain oversight of the company.

The push to sell the Urenco stake - a formal decision could come within weeks and a deal this year - reflects renewed momentum behind the privatisation agenda.

Vince Cable, the business secretary, aims to begin disposal of Royal Mail by selling or floating at least part of it this autumn, if its finances continue to improve.

Analysts estimate the state-owned postal operator could be worth £3bn-4bn.

Earlier this week, the business department announced plans to sell part of the government's student loan book with a face value of about £900m, although the market value was expected to be lower.

Ministers have become increasingly focused on privatisations as a way to cut debt and alleviate the need for deeper spending cuts as George Osborne's austerity programme struggles to meet targets.

Progress towards selling Urenco and Royal Mail would please Conservative MPs, who look back on the big sell-offs of the 1980s, such as BT and British Gas, as symbols of Thatcherite reforms.

The chancellor has had mixed success since targeting a number of state asset sales after the coalition took power in 2010.

Tote, the bookmaker, was sold to Betfred for £265m in 2011 but privatisation of National Air Traffic Control Services was abandoned last year.

The sale of Urenco is complicated by the need for agreement from Britain's Dutch and German partners. This eluded the previous Labour government which launched an abortive privatisation in 2007.

But people close to the situation say prospects are brighter now, with RWE and Eon also keen to sell. The Dutch government is a more reluctant seller but has become more open to a UK and German exit.

With profit margins on uranium enrichment high and rising demand for nuclear power from China and elsewhere, analysts expect strong investor interest.

A successful sale would bolster confidence in the government's ability to pull off tricky privatisations. Other future candidates could include the Land Registry, the Ordnance Survey and the Royal Mint.

The biggest potential privatisations of all, however, remain far off: the government's stakes in RBS and Lloyds Banking Group.

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