Hitachi Sees $2.8 Billion Hit on U.K. Nuclear Halt, Nikkei Says

(Bloomberg) -- Japanese conglomerate Hitachi Ltd. will halt work on a nuclear power project in the U.K. and take a one-time charge as negotiations with the British government over funding stalled, the Nikkei reported. Shares in Tokyo rallied the most in more than two years.

The company will book a loss of between 200 billion yen and 300 billion yen ($2.8 billion) after freezing assets of its British nuclear business and writing down their value, the Nikkei reported without attribution.

Investors applauded signs the company may distance itself from the nuclear power industry -- which has been saddled by cost overruns, stiff competition from cheaper fuels and tougher regulations -- as well as the Brexit turmoil that has consumed the government of Prime Minister Theresa May.

“What investors want is increased profit and a lot of synergy to be captured in the near to medium term, and not long-term projects that could escalate and blowout in terms of costs,” said Damian Thong, an analyst at Macquarie Group Ltd. in Tokyo. “If Hitachi was able to guarantee the on time completion of the project and secure attractive financing of the project with the U.K. government, then perhaps nuclear is possible.”

Shares in Tokyo rose as much as 8.9 percent, the biggest intraday jump since November 2016. The company eased back to a 8.5 percent gain as of 1:59 p.m. local time, compared with a 0.5 percent gain in the broader Topix Index.

Nuclear Plans

Hitachi said in response to questions from Bloomberg News that it's reviewing the project and it hasn't made a final decision. The Nikkei report said the company's board will make a decision next week and cited an unidentified executive saying the project isn't being abandoned entirely and could be restarted in the future.

The conglomerate would join the ranks of Japanese companies including Toshiba Corp. that are shifting away from the nuclear power sector as project costs balloon and demand shrinks in the wake of the 2011 Fukushima disaster. It also follows Hitachi Ltd.'s move last month to take over ABB Ltd.'s power grid division for about $6.4 billion as it shifts toward the higher-growth market for electricity networks.

The reported decision also leaves the U.K. with a dwindling number of potential partners to help fund a revival of its aging nuclear fleet. A decision over the nation's marquee 18 billion-pound ($23 billion) Hinkley Point C project in 2016 was stalled as May's government reviewed the project, sparking speculation there were concerns over its reliance on the participation of Chinese state-owned companies.

According to the Nikkei report, Hitachi was struggling to find Japanese investors to help fund its development and had approached London for further support. Those negotiations made no progress, it said.

Recent Japanese media reports reflected support for the Wylfa Newydd project in Anglesey, Wales, had been waning. The Yomiuri newspaper in December reported the company had informed the Japanese government it may freeze the project. The company's U.K. unit, Horizon Nuclear Power Ltd., also plans a second project in Oldbury, near Bristol in southwest England, which the Nikkei report didn't mention. Hitachi said in 2017 that it was in discussions with multiple parties about selling a stake in Horizon to reduce the financial risks of building the reactors.

To contact the reporter on this story: Stephen Stapczynski in Singapore at sstapczynsk1@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, ;Anand Krishnamoorthy at anandk@bloomberg.net, Pratish Narayanan

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