France submits to tough EUterms for Alstom rescue

PARIS, May 26 (AFP) – France submitted on Wednesday to tough conditions laid down by the EU commission for the rescue of engineering giant Alstom in a landmark case with far-reaching ramifications for European industry and EU competition policy.

The rescue package worked out by EU competition authorities and French industry officials appeared to give Alstom a four-year breathing space with aid from the French government which fought hard to prevent the company from being broken up.

But in exchange for the state taking a stake of 18.5-31.5 percent, which will be withdrawn within four years, Alstom will be required to sell about 10 percent of its business and to take on industrial partners between now and 2008.

Economy, Finance and Industry Minister Nicolas Sarkozy said the deal “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.”

But Alstom insisted it would not make an alliance with German rival Siemens, which is believed to be interested in parts of the French company, notably the power turbines business.

In addition, Alstom, which builds ships, high-speed trains and power stations, will be barred from making any significant aquisitions in the European transport sector for four years.

The group would also receive new capital of between EUR 1.5 billion and EUR 2.2 billion (between USD 1.8 billion and USD 2.64 billion) through the issue of new shares and the conversion of debt into capital.

Sarkozy was meanwhile planning to meet creditor banks Wednesday to secure guarantees worth EUR 10 billion (USD 12.1 billion) that are needed by Alstom customers.

Alstom, France and the EU executive commission hailed the rescue agreement as an assurance that the company, the pride of French engineering and a brand name in energy and transport around the world, will remain intact.

The deal was struck after 10 days of tense negotiating at the end of a probe by the commission going back to an initial rescue plan last September.

However, the constraints imposed on the group are evidence of the commission’s determination to enforce 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 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.

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

He said the accord was “an excellent basis to safeguard Alstom’s industrial future.”

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.

Monti said France would withdraw its stake within 12 months after Alstom received an investment grade financial rating, adding that its withdrawal “in any case will come within four years.”

Kron however 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.

Monti in Brussels said Alstom would have to get rid of EUR 1.6 billion worth of business and added that other assets worth EUR 800 million would also have to go within two years.

But he declined to disclose the assets covered by the EUR 800 million and Alstom said they had yet to to determined.

While private companies are to be favored in the envisaged alliances, Alstom could tie up with a French state enterprise – but only with EU authorization.

In ruling out Siemens, Kron said an arrangement with the German company 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”.

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.

Subject: French news