FRANCE . FINANCE
EU competition commissioner Mario Monti and French finance minister Nicolas Sarkozy are reported to have brokered a bail-out strategy for troubled French engineering giant Alstom that would satisfy the EU’s concerns over the legality of existing plans and meet French imperatives for the long term viability of France’s industrial engineering champion.
No deal has yet been finalised, but the commission is insisting that the French government has agreed to restructure the group to prepare for alliances, joint ventures and disposals of some operations over the medium term. The French for their part insist that its immediate wish to rescue the group more or less intact is being met. The EC believes that it is likely that Alstom will be forced to take on partnerships with other industrial groups over the next few years, even though one of the likely candidates, Siemens, is known to be opposed to the idea and would prefer the break up of what is one of its main European industrial rivals. Indeed it has complained to the commission that subsidies to Alstom have damaged its business, a matter that has yet to be resolved. What is no longer envisaged however is an Alstom partnership with Areva.
Under the new strategy Alstom could have to carry out significant divestments to compensate for state aid that the EC has estimated at more than r3 billion, but the company would not have to sell off its high-speed trains or gas turbine businesses.
The meeting was the result of EU state aid regulators’ examining Paris’ rescue plan for Alstom over potential breaches of EU law. Several plans had previously been suggested to guarantee Alstom’s immediate financial future, including a full or partial merger with the French nuclear group Areva, an industrial partnership with Siemens, and specific temporary banking loans. The new deal has in effect blocked the possibility of an Alstom/Areva combine. This suits Areva which has long been opposed to playing any role in the rescue of Alstom, fearing that this might delay its own privatisation. However, Areva had recently accepted the ‘industrial logic’ of combining with Alstom’s transport business. Now the most obvious buyer or partner for Alstom’s turbine unit would be Siemens, a union that is more in line with the EC’s wishes. As recently as May 18th, Mario Monti was saying in New York that “ … we prevented the Areva option because it has negative state aid implications …” But a complication remains for Mr Monti – he is also responsible for monitoring industrial mergers for monopoly implications. The EU’s opinion on this has already been expressed – that competition rules would not be breached because even after a merger of the Alstom and Siemens gas turbine businesses GE would remain the world’s leading supplier.
In April this year, French banks gave Alstom a further five months to renegotiate bail-out terms after poor results threatened to jeopardise loans incorporated in the rescue of September 2003. But competition authorities in the EU are still examining last year’s rescue and restructuring package which it estimates at r3.5 billion. The commission is determined to ensure that the plan does not contravene state aid rules that prevent governments from unlawfully bending market dynamics by propping up industries. In October 2003, the EU launched an extensive probe into France’s r4.3 billion bail-out plan, after Paris boosted an earlier rescue bid of r3.2 billion by r1.1 billion.
When the EU expressed its dissatisfaction with the these deals, the French government agreed to offer a temporary rescue through a series of loans. One is a long-term ’subordinated’ loan of r200 million and
the other a short-term ‘bridge’ loan, with a quick payback timeframe, of r900 million. The package also sees France replace a r300 million capital increase by a debt instrument that may only be converted to equity. The future of this deal, at least so far as the detail is concerned, has yet to be agreed by the EU, but it is due to be settled during the next few weeks.
The competition commission believes that the steps it is demanding as a condition of formal acceptance of the rescue plan by the EU would also determine the group’s long term viability. The new plan involves the French state in ultimately taking a 31.5% stake in Alstom, but it would be banned under EU rules from granting the group further state aid for 10 years. In addition, Alstom would have to report regularly to the EC on progress in establishing pertnerships with other groups.