Cash-strapped engineering giant Alstom may use a stock market listing to sell a stake in its transport business, which makes the company's famous high speed trains, as early as June if a trade buyer cannot be found before that, according to its transport division chief Henri Poupart-Lafarge.
Alstom announced in November that it was seeking a buyer for the transport business following a decline in orders for its larger power business. The resulting hole in its balance sheet has affected its market listing, and brought its €5 bn debt to just above a "junk" rating.
M Poupart-Lafarge said an offering would allow the parent firm to raise cash without closing the door to an alliance with a strategic investor later on.
Its indebtedness includes €750 million in bonds which mature in September.
Moody's has given its rating a negative outlook, because of the risk that asset sales would fail to raise enough cash.
The group issued a profit and cash-flow warning in January, reducing its targets, and its shares have recently hit an eight year low. The company hopes to raise up to € 2 billion this year, about half the maximum estimated value of the division, from the sale of the transport stake and divestment of some other assets.
The company's main problem is that its power generation business, which accounts for nearly half the company's revenue, has stalled. Group orders had fallen by 12 % during Q2-4 of 2013, mainly owing to a collapse in thermal power orders, hence the reduction in target estimates. This follows weak performances in 2012 and earlier in 2013.
In a statement on 21 January, group chairman and CEO Patrick Kron said:
"Despite a sound level of total orders in the third quarter 2013/14 and a strong commercial performance in a number of businesses, Alstom is affected by continuing low orders for new thermal power plants. In this sector, demand remains subdued in mature markets and has slowed in emerging countries. This is impacting some key performance indicators, notably the free cash flow over this year as well as the sales and profitability anticipated in 2014/15 for Thermal Power. In these conditions, we now anticipate for the Group a moderately negative free cash flow in the second half of this year. The operating margin should remain around 7% this year and may slightly decline next year with the anticipated rebound being postponed. In this difficult environment, our focus remains on the implementation and acceleration of the ambitious cost savings initiatives which have been launched".
This is not be the first time Alstom has sold assets to plug a cash hole.
Ten years ago, with mounting liabilities over faulty gas turbines, the group was on the verge of bankruptcy. The French state rescued it by buying a stake which it later handed over to Bouygues. The company then sold its industrial turbines arm to German rival Siemens, and its power distribution business to Areva. The resulting narrower product offering has made it more difficult to compete with Siemens, ABB and GE.
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