France will pump €9 billion into France Telecom to keep its creditors at bay and is ready to cede control under plans announced early today to nearly halve its €70 billion debt pile by 2005.
In a massive rescue package, the French government and the telecoms giant agreed on a capital increase that will total about €15 billion, with the government pledging to pay €9 billion straight away as an urgent advance. The package gave no date for the rest of the money.
France Telecom, 55% owned by the state, pledged to cut debt by another €15 billion over three years from operating savings, vowing to slash costs and investment and scrap shareholder dividends in 2003.
The former monopoly spent €100 billion on expansion at home and abroad until the telecoms bubble burst in 2000 and its debt exploded.
Chairman Thierry Breton, recruited two months ago after the government ousted former boss Michel Bon, said in a statement issued after a five-hour board meeting on Wednesday night: 'Our first priority is to loosen the financial noose.'
Finance Minister Francis Mer said the recovery plan was both 'ambitious and realistic' and that France Telecom would seek to refinance existing debt to the tune of another €15 billion.
Mer blamed France Telecom's woes on the fact that the state was forced by law to keep control of the group, meaning it had to finance acquisitions through debt rather than issues of shares. But he said he would give up majority control if needed.
The rescue plan, announced in statements from the ministry and the company, buys Breton time to forge ahead with cost cuts, but both sides said France Telecom would hold on to key assets like mobile unit Orange, Internet subsidiary Wanadoo and Equant, a high-speed business communications network company.
* Mr Breton later confirmed reports that France Telecom would sustain a net loss of €17-19 billion this year.
