France's §2.8 billion aid package unlikely to bring quick fix : Alstom bailout may be long haul

A little more than three weeks ago, during Bastille Day celebrations in France, President Jacques Chirac declared that "the era when the state decided everything is over."

Yet as the government stepped in on Wednesday with a §2.8 billion, or $3.18 billion, rescue package for the troubled engineering company Alstom, it looked as if those days might linger for some time. Alstom, a builder of trains, ships and power-generating equipment, detailed a multibillion-dollar bailout in which the government will take a 31.5 percent stake. Paris is leading a group of more than 30 banks in an effort to keep Alstom, which was privatized in 1998, out of bankruptcy and to protect creditors and tens of thousands of jobs.

The conservative government of Prime Minister Jean-Pierre Raffarin has outlined a policy to speed privatizations and promised that its involvement with Alstom will be over as quickly as possible. Finance Minister Francis Mer, insisted the plan was not "a nationalization of losses." But the European Commission warned on Wednesday that Alstom may need to make significant divestitures if the deal is not to be considered illegal state aid.

And analysts said the state might find it hard to extricate itself from Alstom soon, given the deterioration in most of the company's main operations. Investors said the company might struggle to survive on its own without continued government involvement.

"It helps them to avert bankruptcy and meet medium-term liquidity constraints," said Michele de Souza, an analyst at Nomura Securities. "Long-term, they may be better off as part of another, larger group."

Under the plan, Alstom will sell §600 million of new shares, with the government buying half. France will also issue §900 million in bonds convertible into stock. It has arranged §1.3 billion in subordinated loans ã §200 million of which are from the state ã and §600 million in short-term financing.

Banks are also providing $3.5 billion in credit to finance contracts with customers; 65 percent of that will be guaranteed by the government.

In the short term, the package is intended to make it possible for Alstom ã struggling under nearly §5 billion in debt ã to pay back more than §1.75 billion in bonds and loans coming due next year. "It's very clear that without refinancing of Alstom in the conditions we've described, we would have hit a wall ã that's for sure," the chief executive, Patrick Kron, said. The chief financial officer, Philippe JaffrÈ, said the package would cut debt to §3.4 billion from §5 billion.

But analysts questioned whether Alstom might not encounter more formidable barriers later. In that case the government, which has already drawn the European Commission's scrutiny over aid to for France TÈlÈcom and ElectricitÈ de France, could find itself engaged in a long-term restructuring project.

Many of Alstom's operating units are struggling with a sluggish global economy, a downturn in key markets such as power generation and their own mistakes, analysts said.

After acquiring power operations from the troubled Swiss-Swedish company ABB three years ago, Alstom was saddled with nearly §4 billion in costs when flaws were found in gas turbines it had built. Shipbuilding is also a troubled industry, and analysts expect Alstom to try to find a partner for its yards amid generally weak demand for cruise liners. Alstom's transportation unit, which builds France's high-speed TGV trains, may have slightly better prospects.

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