Alstom reveals tough EU rescue terms

26th May 2004, Comments 0 comments

PARIS, May 26 (AFP) - French engineering group Alstom revealed details on Wednesday of an EU-approved rescue plan requiring it to sell about 10 percent of its business and take industrial partners in return for state aid.

PARIS, May 26 (AFP) - French engineering group Alstom revealed details on Wednesday of an EU-approved rescue plan requiring it to sell about 10 percent of its business and take industrial partners in return for state aid.

But it ruled out an alliance with its German rival Siemens.

Officials from Alstom, the French government and the European Union's executive commission hailed the agreement as a guarantee that the company, the pride of French engineering, will remain intact.

However, the deal imposes tough constraints on the group and is evidence of the commission's determination to apply EU regulations governing state assistance to failing enterprises in the private sector.

A measure of Alstom's difficulties emerged Wednesday with an announcement by the group, which builds ships, high-speed trains and power generation systems, that it ran up a larger-then-expected net loss in its fiscal year to March 31 of EUR 1.836 billion (USD 2.2 billion).

Sales fell 22 percent and orders by 14 percent. But there was better news on the operating level where a loss in the previous fiscal period was turned into a profit of EUR 300 million.

Debt fell by nearly EUR 2 billion to EUR 3 billion, reflecting a capital increase and asset sales.

With Alstom's future in peril, the French government last September launched an ambitious rescue initiative that required approval from EU competitition authorities.

The green light came Tuesday after a round of tough negotiations between French and EU officials in Brussels.

On Wednesday EU Competition Commissioner Mario Monti said that France had provided written commitments to clear the way for formal EU approval.

He said the accord was "an excellent basis to safeguard Alstom's industrial future," adding that he would now submit the plan to other members of the EU commission.

Under terms of the deal, as outlined by Alstom chairman Patrick Kron, the French state would become a shareholder with a stake of between 18.5 and 31.5 percent. Kron said he expected the government to retain its stake for what he called the recovery phase of the plan, which has been set for the next two years.

The group will be obliged to sell assets generating sales of EUR 1.5 billion a year, equivalent to about 10.0 percent of turnover, which according to a company statement will be spread between rail freight locomotives, transportation activities and industrial boilers, notably in Australia, New Zealand and Spain.

EU Competition Commisioner Mario Monti said in Brussels that the figure was EUR 1.6 billion.

In addition, Alstom has agreed not to undertake any major acquisitions in the European transport sector in the next four years and will take on one or more industrial partners between now and 2008.

While alliances with private companies are to be favored, Alstom could tie up with a French state enterprise - but only with EU authorisation.

This would appear to rule out a link with the French state nuclear group Areva, which Monti said the commission had already blocked last September.

Kron also ruled out any alliance with German rival Siemens, which was reported to have signalled an interest in Alstom's large turbine activities.

Kron asserted that such an arrangement was in the interests of neither Alstom's customers nor its employees.

The partnerships envisaged in the deal, he said, "are neither a perspective for dismantling nor a forced marriage".

"With the exception of shipbuilding and activities that we are committed to divesting, we do not plan to pull out of any businesses whatsoever."

French Finance Minister Nicholas Sarkozy said the arrangement with the EU "will give (Alstom) four years to strengthen its finances, win new markets and conclude industrial agreements."

"It was that or dismantling and we didn't want dismantling."

Under the overall rescue the French state is to convert debt into equity that would subsequently be diluted depending on the extent to which creditor banks also convert debt into equity, and then by an issue of shares on the market.

The conversion of bank debt into equity would be up to a maximum of EUR 700 million.

The French state would convert EUR 300 million of subordinated debt which, with subordinated loans, could rise to EUR 500 million on condition that the state's shareholding did not exceed 31.5 percent.

"With a portfolio of activities concentrated on the production of energy and trasportation (equipment), a strengthened balance sheet and a stabilisation of the shareholders with the arrival of the French state, this plan should enable us to concentrate on our operational priorities," Kron said.


Subject: French news

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