France’s Next President May Face $3 Billion Nuclear Hangoverby
Not enough left in the kitty to bail out both EDF and Areva
Sale of assets from phone company to Renault may be considered
Whoever succeeds Francois Hollande as France’s president may find one of their first tasks in office will be selling off some of the nation’s prized assets to prop up the state’s nuclear industry.
That’s because the government is as much as 3 billion euros ($3.2 billion) short of the 7.5 billion euros it has said it needs this year to fix the financial problems of Areva SA and Electricite de France SA, said two government officials with direct knowledge of the matter. Hollande will try to find an answer before he leaves office in June, one of the people said. If he can’t, his successor must decide how to plug the gap, said the other person.
France is preparing to rescue its nuclear industry after EDF was weakened by falling European power prices and Areva lost billions on a long-delayed project in Finland. The president must either increase the national debt or weigh politically sensitive privatizations of holdings in anything from automakers such as Renault SA to the former phone monopoly -- a tall order with the first round of presidential elections just three months away.
“It’s not that simple to raise these funds, either because of market conditions or for strategic or social reasons,” said Senator Maurice Vincent, a member of the ruling Socialist Party who sits on the finance committee. “Half of the holdings are in the depressed energy sector which needs to be bailed out, and a quarter is in the defense sector where you have limited divestment leeway, so that doesn’t leave much wiggle room.”
While the government has enough in its privatization account for the 3 billion-euro stimulus it plans for EDF this quarter, it remains almost 3 billion euros short of the 4.5 billion euros it wants to help its near-bankrupt reactor maker, Areva, complete its restructuring and meet debt repayments this year, said the officials. Areva shareholders on Friday voted in favor of a 5 billion-euro state-backed bailout, which includes 500 million euros from Japanese investors.
France depends on nuclear reactors for about three-quarters of its electricity, and the two state-controlled companies were supposed to be leading the charge to export the technology around the world. All three leading presidential candidates have said they will support the nuclear industry, at least in the medium term, as the best guarantee of energy security and a low-carbon future.
Hollande’s spokesman didn’t answer messages seeking comment for this story. Representatives of Francois Fillon, the Republican Party candidate, Socialist Benoit Hamon and Emmanuel Macron, an independent, also declined to comment.
Marine Le Pen of the National Front wouldn’t sell state assets but instead ask state-controlled Caisse des Depots et Consignations to invest in Areva, her economic adviser Bernard Monod said in a text message.
The winner of the election runoff due May 7 faces a difficult choice between increasing the national debt or selling stakes in public companies, valued at a total of about 90 billion euros. While the government owns a piece of everything from the postal service to carmakers Renault and PSA Group, manufacturer of Citroen and Peugeot, its privatization options are constrained by shareholder pacts, politics and the financial circumstances of some of the companies.
Those holdings include an 11 percent stake in aircraft maker Airbus, which can’t be reduced without ceding some control to Germany, and a 26 percent stake in defense company Thales SA, which is bound by a shareholders’ pact with Dassault Aviation.
Similarly the government has been reluctant to sell down its stake in former phone monopoly Orange SA and would face obstacles to selling shares in airplane-engine maker Safran SA because of a pending deal.
In its haste to raise money, the government sold a stake in energy group Engie SA for 1.14 billion euros last month when the shares were near an all-time low. The state retains about 29 percent of Engie, but now “is the worst moment to sell,” said Regis Turrini, who ran the agency that manages government holdings in public companies from 2014 to 2015.
Hollande had pledged to reduce the government holding in Renault SA to about 15 percent from 19.7 percent. However, Renault’s share price remains lower than when the president increased the government’s stake in 2015.
A potentially more lucrative sale would be a 13.7 percent stake in Peugeot, but Hollande, who came to the rescue of Peugeot by buying an 800 million-euro stake in 2014, is unlikely to abandon the carmaker to market forces just before an election. On a visit to a factory last month, he promised not to sell the shares.
“Choices made by the state are sometimes curious,” said Herve Mariton, a Republican party lawmaker who also sits on the finance committee. “It’s selling Engie shares at a very low level, and taking a doctrinaire stance on Peugeot, which is a good candidate for divestment.”