French free France Telecom to raise cash

The French government is looking to raise up to €5.8bn to help pay its debts by selling some of its France Telecom shares.

As this will reduce its shareholding to just over 40 per cent, the move will allow the telco to start acting more like a private company - it can now issue shares for acquisitions, for example.

The French government is rumoured to be planning to sell a wide range of state assets to reduce its debt and keep the EC sweet. It has breached the Stability Pact rules on government debt and been exposed to EC criticism.

But France Telecom is still saddled with €37bn of debt, part of the debt mountain of €70bn that the telco built up as it splurged in the dot-com feeding frenzy, picking up Orange, among other interests.

The company was unable to issue shares, once worth €219 each, for acquisition at the time because it would have diluted the government's controlling shareholding.

Last year, the French government was obliged to give the telco a €9bn credit line as it struggled to bring off a €15bn rights issue and shrink its debts to a more manageable size.

The EC claimed that this was, in effect, a subsidy and therefore forbidden. The French government said that as France Telecom never drew on the credit, it didn't matter. The dispute between the two governments rumbles on in the background.