Monday, May 24, 2004

It pays to be French

In the wake of the bail-out of EDF, with its sham privatisation, another rescue plan is near completion, this time for the troubled engineering giant, Alstom. This is the company which, thanks to state aid, was able to bid competitively for the contract to build the huge new Cunard liner, the QM2.

EU competition commissioner Mario Monti and French finance minister Nicolas Sarkozy, it seems, are ready to stitch up a deal, which may be announced today. It will pump two billion euros into the company yet circumvent the EU’s state aid rules – although there is one remaining "sticking point" which neither side will disclose.

The rescue plan involves converting 800 million euros of Alstom debt into stock which will be bought up by the French government, giving it a 31.5 percent stake. The company is also expected to launch a share issue or debt-for-equity swap, which, under heavy pressure from Sarkozy, will be backed by a consortium of commercial banks.

As a token gesture to allow Monti to save face, Alstom will be required to forced to link with other, unspecified , competitors, and may have to sell assets.

According to Reuters, quoting a London-based analyst, "This has all been about political posturing. The EU wants to defend state aid rules and France wants to defend French business. They'll probably meet somewhere in the middle and may come up with something decent." Quelle surprise!

However, the company is far from out of the woods. Its shareholder equity has shrunk to less than one billion euros, compared to net debt of 4.5 billion euros in September or close to 10 billion euros including off-balance sheet liabilities. It is expected to post a net loss of around 1.1 billion euros for the just-ended business year on Wednesday, only slightly better than last year's record 1.38-billion-euro loss.

The contrast between Monti’s tolerance on Alstom and his directorate’s attitude to the scheme run by the Crofters Commission in Inverness - whereby the far-flung small farmers of the Scottish highlands and islands have been able to hire the services of top-quality bulls and rams to inseminate their cows and ewes – could not be more extreme.

As publicised in the Booker column yesterday, this "livestock improvement scheme" relies on modest public funding, and officials of Mario Monti directorate have ruled that it is in breach of "state aid rules", forcing it to close down. Clearly, in the EU game, it pays to be French.

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