French state cedes control of France Telecom

1st September 2004, Comments 0 comments

PARIS, Sept 1 (AFP) - Control of French telecommunications operator France Telecom is to pass into private hands, with the state cutting its stake below 50 percent to reduce national debt two years after helping the group dig itself out of a debt crisis.

PARIS, Sept 1 (AFP) - Control of French telecommunications operator France Telecom is to pass into private hands, with the state cutting its stake below 50 percent to reduce national debt two years after helping the group dig itself out of a debt crisis.  

France unveiled the operation Wednesday, with Finance Minister Nicolas Sarkozy announcing the sale of at least 9.6 percent of its stake in France Telecom.  

"The state will make a capital gain and will be able to ... reduce its debt and give the company the freedom it needs," Sarkozy told reporters following a cabinet meeting in Paris.  

In reducing the national debt, France also eases the cost of debt servicing, a substantial element of the public deficit which exceeds eurozone limits.  

The stock sale is worth up to EUR 5.8 billion (USD 7.0 billion) based on Tuesday's closing price, depending on the number of shares sold, and is a sequel to a EUR 15-billion recapitalisation in March 2003 to which the state contributed EUR 9 billion.  

The share price has rallied this year, while remaining far below previous high points.  

Analysts had said that the price was unlikely to rise farther until some of the overhang the government was expected to sell had been absorbed by the market. The government said on Wednesday it would not sell any more stock for nine months.  

France Telecom is a national icon and changes to staff status or perceived employment conditions are controversial. Trades unions quickly condemned the the sale as scandalous and a demonstration of force by the government.  

The company was a key figure in the Internet boom but found itself in crisis in 2002 with debt estimated at EUR 75 billion and a record loss of EUR 20.7 billion.  

It had fuelled a nascent French shareholder culture with an initial listing in October 1997 despite union opposition, and much of the company's staff had snapped up shares.  

The stock scorched investors and employees however, losing 96.8 percent of its value from a high of EUR 219 in March 2000 to a low point of EUR 6.94 in September 2002.  

While rival operators raised capital during the boom and again when the bubble burst, France Telecom was hobbled by a cash-strapped state reluctant to increase its holding and unwilling to see it diluted.  

So the company raised debt instead of capital, and, as the tech bubble burst, became the most indebted in the world, providing the government elected in May 2002 with its first domestic economic test.  

Four months later, then company chairman Michel Bon resigned, leaving the group with estimated debt of EUR 75 billion.  

That had been reduced to EUR 48 billion at the end of June 2004, through asset sales and the raising of capital in March 2003.  

Throughout its crisis, however, the company showed a strong operating performance.   The state now plans to retain 41.0 to 43.5 percent of the capital and to remain a major shareholder in the medium term, a finance ministry statement said Wednesday.  

Its move means France Telecom will have a more flexible capital structure and a larger investment base.  

The operation is to be carried out through an institutional placement involving 236 million shares, rising to more than 299 million depending on demand, a figure which represents 12.1 percent of the group's equity.  

Shares will also be offered to existing and former France Telecom employees.  

The France Telecom board is to propose a convertible bond issue worth between 1.0-EUR 1.15 billion as well, with the money to be used for internal purposes.  

On Wednesday, France Telecom shares were being traded at EUR 19.05 in late morning deals on the Paris stock exchange, a drop of 1.90 percent from Tuesday's close.  

The new shares would be priced between EUR 19.95 and EUR 19.25, the finance ministry told AFP.

 

© AFP

Subject: French news

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