EU competition commissioner Mario Monti has backed the French government’s latest plan to bail out Alstom Group and in doing so has
also indirectly supported its poliicy regarding the preservation of national industrial champions. French premier Jean-Pierre Raffarin justified this policy on the basis of the necessity to ‘avoid delocalisation and jobs leaving Europe’. The new deal gives Alstom a breathing space of at least two years.
Although the UK has been a fierce critic of the French government’s protective attitude to its failing industrial giants, in this case it is likely to put up little opposition because it hopes to be allowed similar leeway in its treatment of the crisis at British Energy. Industry secretary Patricia Hewitt said in May that she expected the EU to approve the £5bn rescue of BE despite having already characterised it as unlawful state aid.
Under the new deal Alstom’s equity is to be strengthened by between 1.8 and 2.5 billion euros made up of equity conversion (r300 m) and a capital increase of 1.5 to 2.2 billion made up of r1.0 to 1.2 billion in rights issues and 500 million in debt-for-equity swap. Bonding capacity is to be extended to cover the needs of the next 24 months.
Alstom’s core banks have agreed to underwrite r1 billion of the capital increase with preferential subsciption rights which will be submitted for shareholders approval at the AGM and EGM to be held on July 9th. Alstom has also launched the syndication of a bond facility up to a maximum r8 billion which should cover the group’s financial needs for the next 24 months. The core banks will be providing r6.6 billion of this new facility.
This restructuring of Alstom’s debt also means that these same banks have agreed to accept the suspension of Alstom’s covenants (guarantees to respect certain financial agreements) applicable to last September’s debt restructuring. The suspension lasts until September this year when Alstom’s situation is scheduled to be assessed again.
The rescue deal was due to come up for EU approval at the end of June. It follows a year of lower sales (at r16.7 billion 10% down on 2002/3) and an overall loss of r1.84 billion. Subject to shareholder approval the nominal share value is to be reduced form r1.25 to r0.35. As a result the State’s holding could end up anywhere between 18.5% and 31.5%, the latter figure being the more likely.
Meanwhile chief executive Patrick Kron has rejected the idea of a merger with German rival Siemens, which is known to be interested in the group’s turbine division, suggesting instead a sale of its freight locomotive business, and its transport division to Spanish and Australia/New Zealand companies respectively.
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