Apollo to fund UK's Hinkley Point nuclear project with $6 billion loan

Apollo Global (APO.N) will provide £4.5 billion ($6.08 billion) in financing for the Hinkley Point nuclear project in the UK, Britain's first new nuclear plant in over two decades. The funding, provided as unsecured debt at an interest rate of just under 7%, will come from Apollo-managed affiliates, funds and strategic accounts via fixed-rate callable notes issued by EDF. The Hinkley Point project, controlled and financed by EDF, has faced delays and cost overruns, and is currently expected to begin operations in 2029.

Analysis

Apollo Global Management (APO.N) is committing £4.5 billion ($6.08 billion) to finance the UK's Hinkley Point nuclear project, a strategically significant initiative representing Britain's first new nuclear plant in over two decades. This funding will be provided through fixed-rate callable notes issued by French power giant EDF, structured as unsecured debt with an interest rate of just under 7%. The Hinkley Point project, crucial for the UK's energy security, climate targets, and job creation, has a history of significant delays and cost overruns, with current cost estimates between £31 billion and £34 billion (at 2015 prices) and an expected operational start in 2029, notably after China General Nuclear Power Group withdrew its support in 2023. Apollo's investment fills a critical financing gap for EDF and underscores a broader UK government commitment to nuclear energy, evidenced by its recent £14.2 billion investment in the Sizewell C project. For Apollo, this represents a substantial, long-term deployment in critical infrastructure, offering a potentially attractive yield but also exposing its managed funds to project execution and completion risks inherent in such large-scale, delayed ventures.

Key Decisions for Investors

• For investors in Apollo (APO), this £4.5 billion unsecured debt investment in Hinkley Point at nearly 7% signifies a substantial capital deployment into long-duration infrastructure, potentially bolstering income for its managed funds.
• Careful monitoring of the Hinkley Point project's execution, given its history of delays and cost overruns, alongside the creditworthiness of EDF, is warranted to assess the risk-adjusted returns of this significant commitment by Apollo.
• This deal showcases Apollo's capability in large-scale infrastructure financing and its participation in the energy transition theme, but investors should consider the implications of allocating significant capital to complex, potentially high-risk projects like Hinkley Point.