Managing Corporate Finance - MBA Programme Research Paper

Managing Corporate Finance - MBA Programme - Research Paper Example With a net debt component of  £679 million in the capital base and  £700 million as equity capital the interest coverage ratio of the company was comfortably placed at 46.0 times in 1996.   However, this ratio could not be sustained for long as in the immediate year it fell to 6.7. This may be due to the additional debt of  £262 million issued by the company in 1997. But in the following two years it discharged its debts worth  £10 million and  £176 million respectively. Interestingly, even after the discharge of this debt, the interest coverage ratio declined to 6.7 times. This may be due to the influence of macroeconomic factors like increase in interest rates. The interest rates prevailing in the UK in 1996 was in the range of 6 - 6.25 %. For the most part of the year, the monetary authority kept reducing the interest rate by 0.25 percent. But thereafter the interest rates in the UK started moving upwards. It reached up to 7.25 percent by the end of 1997. This was an increase of 100 basis points over the last year. This appears to be the main reason for the high-interest amount paid by British Energy in 1997.  After this the company was running in losses till the next two years. It recorded a loss of  £4292 million in the financial year 2002-03. The Executive Chairman tried to assure the investors of the financial stability of the company but this did not pay off as in the Financial Services authority suspended the dealing of British Energy shares. This forced the company to seek government support of  £650 million.