BRITISH ENERGY (BE), the stricken nuclear generator responsible for supplying a fifth of the UK’s electricity, was cleared yesterday by the Financial Services Authority (FSA) of misleading the market about the health of its finances.

The FSA, the City regulator, said it had completed an investigation and found no evidence that the stricken power company had breached any of its disclosure obligations.

The watchdog launched an inquiry into British Energy after the company said in September last year that it faced insolvency if it did not receive immediate financial assistance. Just weeks prior to that statement, the company had told analysts in a conference call that it had sufficient lines of credit to meet foreseeable monetary requirements.

Based on that information given to analysts, Morgan Stanley, the investment bank, issued a “buy” recommendation on the electricity generator. The analysts spelt out their recommendation partly on the assumption that British Energy, Britain’s largest nuclear generator, had sufficient banking facilities to meet its immediate funding requirements and stay within its banking covenants.

The FSA has, however, ruled out taking any further action after determining that the energy group had taken appropriate steps at the time to ensure it complied with market rules. It said: “The evidence submitted to the FSA suggests that BE was aware of its disclosure obligations and took appropriate steps to ensure compliance with such obligations during the relevant period.”

A spokesman for British Energy said: “We welcome the decision. This inquiry has taken a long time and we are very pleased with the outcome.” British Energy shares were steady at 5.3p on thin volumes.

As part of its investigation, the watchdog had looked into statements made by Robin Jeffrey, British Energy’s then executive chairman, and Keith Lough, the former finance director, on August 14, 2002, that the company did not face a “financial crisis” or an “immediate credit crisis”.

On September 5, British Energy shares were suspended after the disclosure of its perilous financial state, and the stock plunged 65 per cent when they resumed trading four days later. The power generator was bailed out at the time with a government loan worth £410 million.

Creditors of British Energy are now awaiting approval from the European Commission for a £2 billion debt-for-equity swap that would see them take ownership of 97.5 per cent of the company.

The Commission will assess whether the restructuring would amount to illegal state aid, since it is dependent on renegotiation of contracts with British Nuclear Fuels, the government-owned nuclear generator and reprocessor.

Administrators from KPMG will remain on call to take over at British Energy until September 2004, by which time the Commission will have decided whether or not to grant its approval for a rescue.