re-statization: Alstom to inject up to E2.5bn into balance sheet
By Martin Arnold and Richard Milne in Paris
Published: May 26 2004 8:49 | Last Updated: May 26 2004 14:28
Patrick Kron, chief executive of Alstom, sounded a defiant note on Wednesday as he dismissed calls for the French engineering group to be pushed into a "forced marriage" or to be dismantled.
The size of the challenge facing Mr Kron became clear as he outlined a state-backed rescue plan to inject as much as €2.5bn ($3bn) of capital into its stricken balance sheet after a third year of deepening losses.
The refinancing, including a capital increase and a debt-for-equity swap by the government and banks, will make the state Alstom's leading shareholder, with up to 31.5 per cent of its equity.
Mario Monti, Europe's competition commissioner, said France had promised to sell its Alstom stake in four years, or within a year of it regaining an investment grade credit rating.
Nicholas Sarkozy, French finance minister, said the bailout would "give at least four years to this big company to restructure its finances, conquer market share and eventually agree industrial alliances. It was either this or dismantlement, which we did not want."
In return for Mr Monti's approval of its bailout, Alstom has agreed to dispose of businesses with revenues of €1.5bn, freeze transport acquisitions for four years, and create a joint venture in its hydroelectric turbine division, which has sales of €900m.
Mr Kron said the disposals would include its freight locomotive unit in Spain, its transport division in Australia and New Zealand and its industrial boilers business.
The European Commission also wants Alstom to form at least one "industrial partnership" by 2008. Mr Monti says this means selling a majority sake in one of its showcase businesses - high-speed TGV trains or gas turbines.
But Mr Kron said he would "resist transforming Alstom from a coherent industrial group into a holding company of minority stakes".
He said partnerships would "allow Alstom to penetrate new geographical areas, such as Asia, Latin America and East Europe, or to develop new products".
He also ruled out a merger with Germany's Siemens, which has expressed an interest in parts of Alstom.
"We consider such a merger [with Siemens] not to be in the interests of our customers, who are already supplied by a very concentrated sector," he said.
Jean-Pierre Raffarin, French prime minister, defended the bailout. "To avoid delocalisation and jobs leaving Europe we need big industrial champions, it is true for the TGV, for Airbus, and for the health sector, we did the same thing with Sanofi-Synthélabo and Aventis," he said.
Alstom is cutting 8,400 jobs, or 11 per cent of its workforce, to reduce costs by €500m by 2006. This includes the closure of a UK train factory in Birmingham employing 1,000 staff.
The bailout will see Alstom's third rights issue in two years to raise €1bn-1.2bn, underwritten by the banks. The government will convert €800m of debt into equity. Core creditor banks will be offered to swap as much as €700m of debt for equity.
The banks will also grant €8bn of fresh contract guarantees, underwritten by the company, its banks and the state, to replace those expiring in September.
Alstom made a record net loss of €1.84bn for the year to March, compared with €1.43bn last year. It was hit by hefty restructuring and financial costs and a wafer-thin operating margin of 1.8 per cent.
Cash outflow was €1bn, but it said this would fall to €400m this year and turn positive in 2006. Sales fell 10 per cent to €16.7bn, but orders rose 1 per cent to €16.5bn.
Alstom's highly volatile shares were down 7 cents at €1.11 in mid afternoon trade.
This re-statization re-nationalization is going to be the rage of this decade. |
