Under pressure from the EC, which had threatened to rigorously apply EU law if the Union's rules were not adhered to, the French government has formulated a new rescue plan to save faltering engineering giant Alstom.
Several days of discussions involving all parties, including the EC, have resulted in a new agreement 'designed to meet Alstom's financial needs while complying with European Com- mission requirements'. The company's $5.7 billion of debt would almost certainly have led to its bankruptcy without the rescue package, previously blocked by the EU which branded it as illegal state aid.
Under the new plan the government will not now become a direct shareholder in the group, but will buy some of the firm's debt. In all, 3.2 billion Euro of new financing has been arranged. Crucial to the deal is the role of the consortium of banks that will guarantee a 900 million Euro bond issue supporting a 1200 million Euro strengthening of capital topped up by the French state with a contribution of 300 million Euro. There will be 500 million Euro in new long term loans over 15 and 20 year periods, both backed by state subordinated bonds, and 1500 million Euro in 5 year loans, of which 1200 million will come from a consortium of banks and the balance of 300 million from the state.
The EC had threatened to get tough with France if it supported Alstom and prevented its bankruptcy by an injection of government cash. To avoid legal action, the French government has altered the terms of its aid by transforming it into a mix of short term loans and longer term refinancing guaranteed up to a limit of 65 % by the state.
The French government's earlier rescue plan, announced in August, involved it in taking up a 31.5 % stake in the group. Alstom had already sold off its industrial gas turbines division to Siemens, put up its T & D division for sale, and announced huge job losses in order to raise capital and cut costs.
France had been accused by the EC of attempting to legitimise its actions by deliberately delaying its aid proposals application to the EU until it was too late to oppose it. In the person of finance minister Francis Mer, France formally applied to the EU's competition commissioner Mario Monti in early September for permission to go ahead with the plan, claiming that Alstom, which employs 118 000 people, would go bankrupt without it. Monti's response was that the EC would follow the law, which forbids such transactions except under very limited circumstances, and that France had had months to notify Brussels but had waited until the last minute, giving the EC no time to properly review the proposal. EU policy is to approve 'bridging loans' to provide short term emergency support, but insists that long term financing must come from private investors. Now Monti is praising France for its co-operative attitude; "I have in my hands the unconditional agreement of the French authorities not to put in place what we did not want them to put in place" he said.
The deal will go before Alstom shareholders at an EGM on 18 November, and its terms will also have to be formally ratified by the EU.
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