French state ready to lend France Telecom €9bn

The French government yesterday signalled it would ride to France Telecom's rescue as the debt-laden telecoms company prepares to announce its long-awaited refinancing plans.

Separately, it looked likely the group would also announce that Jean-François Pontal, the chief executive of the mobile phone operator Orange, planned to retire amid speculation France Telecom might buy up shares in that business to gain full access to its cash flows.

France Telecom, which has some €70bn of debt, is mulling its restructuring options which could include a rights issue, selling off assets and slashing as many as 20,000 jobs.

Nicole Fontaine, the Industry minister, told parliament yesterday that the government would "actively participate" in France Telecom's restructuring plan. The government, which owns 55.5 per cent of the group, is expected to set up a state-owned company to borrow €9bn to lend to France Telecom.

France Telecom's chief executive Thierry Breton, who has been working on the refinancing plan since his appointment in early October, and the company's board are due to meet today. He is expected to announce formally how he plans to cut the group's debt to more manageable levels tomorrow.

M. Breton is also expected to say that M. Pontal, who is 60 next April, plans to retirein the spring. Graham Howe, Orange's deputy chief executive and chief operating officer, is seen as most likely to fill his shoes.

City analysts thought, however, that France Telecom was unlikely to buy up more Orange shares since it would also force it to take on more debt. "A cash transaction would put further strain on the France Telecom balance sheet in addition to the immediate liquidity of €15bn of debt falling due in 2003," analysts at Cazenove said.

There was also speculation that M. Breton might seek to replace France Telecom's finance director, Jean-Louis Vinciguerra.

Previously, France Telecom had been expected to sell shares in Orange to help eliminate debt. Analysts estimate the company needs to raise in the order of €15bn to fix its balance sheet which, at one stage, they thought it might do via a rights issue.