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Veolia Jumps After Confirming Asset Sale Plan to Cut Debt

Veolia Environnement SA (VIE), the biggest water company, jumped the most in eight months in Paris trading after confirming financial targets and saying it will buy back bonds by the end of the year to cut borrowing costs.

Veolia climbed as much as 8.3 percent, the most since March, and was up 6.5 percent at 8.11 euros as of 12:50 p.m. local time.

Chief Executive Officer Antoine Frerot wants to cut debt and scale back global operations to boost profits. The company has “some headroom” to buy back bonds given its cash position of close to 6 billion euros ($7.7 billion), Chief Financial Officer Pierre-Francois Riolacci said on a conference call. Third-quarter adjusted operating cash flow rose to 562 million euros from 544 million euros.

Bond repurchases may “eliminate lingering market concerns over the possibility of a capital increase,” Citigroup Inc. said in a report. The results are “evidence Veolia’s restructuring is underway.”

The utility will keep the market “in suspense” about which bond maturities it will target, Riolacci said.

Adjusted operating income fell 25 percent to 840.9 million euros in the first nine months from a restated 1.12 billion euros a year earlier, according to a statement. Waste-handling volumes fell 1.1 percent because of the economic slowdown.

The utility plans to sell 5 billion euros of assets and cut investment this year and next. It will also reduce operating costs by 270 million euros in 2013.

Cash Flow

Veolia confirmed targets given in December for annual sales growth of more than 3 percent from 2014 and adjusted operating cash flow to increase by an average of more than 5 percent.

Frerot has fought off a bid to oust him this year and has also overseen the sale of the utility’s U.K. regulated-water, U.S. waste-management and Baltic waste businesses. A new chief operating officer will be named in December to take charge of cost-cutting efforts.

Veolia has said it will narrow its geographic reach to about 40 countries. Former CEO Henri Proglio’s expansion spree, begun in 2006, took the utility to 77 nations. Proglio now heads Electricite de France SA.

Net financial debt stood at 15.2 billion euros at the end of September, up from 14.7 billion euros at the end of 2011. The utility sold 1.66 billion euros of assets in the first nine months of the year and said debt will drop by 2.5 billion to 3 billion euros in the fourth quarter after the sale of the U.S. waste handling business closes as early as next week.

The U.S. sale will reduce Veolia’s debt by 1.5 billion euros while changes in the shareholding of Berlinwasser, a water utility in the German capital, will take off another 1.4 billion euros, Riolacci said.

Beat Target

“There is absolutely no question” Veolia will complete the 5 billion-euro asset sales target and even exceed it, Riolacci said. It may not be necessary to sell all of the assets slated for disposal, he said, while an extra 200 million to 400 million of other assets may be sold before the end of the year.

“We expect strong capital gains on the disposal of our U.S. operations so we are confident that the second half of the year will be overall positive in terms of net income,” Riolacci said.

The utility wants to lower its holding in the Transdev transport unit to 20 percent within about two years, the CFO said. Veolia is in talks with the local Berlin government on its holding in Berlinwasser, which the utility would prefer to keep, and isn’t in discussions with Suez Environnement on asset sales, he said.

Veolia wants to retain its stake in energy-services division Dalkia, he said. EDF has sued the utility over the right to own 50 percent of Dalkia. Veolia owns 66 percent of Dalkia in France while EDF holds the rest.

Riolacci today reiterated that EDF lost its right in 2005 to raise its holding in Dalkia.

Frerot wants to cut borrowing to less than 12 billion euros at Veolia by the end of 2013 and will trim the dividend to 70 euro cents a share this year and next, from 1.21 euros.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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