French may shelve Renault sell-off plan

STEPHEN JESSEL

Paris

Plans by the French government to privatise the car giant Renault before the end of the year may have to be abandoned because of the weakness of the French stock market and the reluctance of foreign institutions to invest in France.

"I do not want the state selling off its heritage at a knockdown price," Finance Minister Jean Arthuis said in an interview earlier this week. Yesterday Renault shares were trading at around 144 francs ( pounds 18.37) compared with the 165 francs at which the first tranche of shares were offered in the initial stage of privatisation in November 1994 which cut the state's holding to a little over 50 per cent.

Prospects for the firm improved recently, and the share price rose, after Prime Minister Alain Juppe announced the continuation of a scheme to encourage owners of old vehicles to send them to breakers' yards and buy new cars.

For technical reasons only one state-owned enterprise can be privatised before the end of the year and it is looking increasingly likely that the chief candidate for a sell-off could be the aluminium firm Pechiney rather than Renault.

The government desperately needs the revenue from privatisation sales to cut the budget deficit and was hoping to raise between Fr40bn and Fr50bn (pounds 500m to pounds 637m) from sales this year. So far only about 17 billion francs have been realized.

The problem for the government is the continuing weakness of the French stock market. Whereas the Dow Jones index has risen 65 per cent since July1990 and the FT100 44 per cent, with smaller but respectable rises on most other European bourses, the CAC 40 index is actually lower than it was at that time.

Investors take the view that the most attractive state-owned companies- such as the petro-chemical giant ELF - have already been been privatised.

Subsequent sell-offs have attracted diminishing numbers of takers- down from three million for ELF to 800,000 for the latest privatisation, that of the steel firm Usinor.

Small investors in Eurotunnel have had their fingers badly burned and foreign investors sceptical about the ability of the new French government to maintain the link with the German mark are reluctant to buy into the French market.

Investors calculate, too, that the government's need to raise cash may force it to offer better terms for later privatisations of less attractive companies.