Paris gears up for the sale of the century: France's new leaders will put state assets on the privatisation catwalk, writes Gail Counsell

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The Independent Online
THE elegant restaurants around the Paris Bourse were packed last week, as the French stock market celebrated the arrival of a new right-wing government in characteristic style.

The election of Edouard Balladur as Prime Minister fires the starting gun for a massive sell-off of France's extensive state sector. Queuing up to benefit are the stock market professionals who will organise the sale of the century. The market's main CAC 40 index rose accordingly.

According to some estimates, as much as Fr500bn ( pounds 62bn) of assets may be placed on the block over the next decade, though the initial aim will be to raise Fr200-300bn over four or five years, starting this year with disposals of around Fr30-40bn.

France's privatisation programme dates back to the 1986 right-wing government of Jacques Chirac, when Mr Balladur, then Minister for the Economy, drew up a list of 65 state-owned companies for disposal.

In 14 months, he managed to sell 29 of them, worth around Fr120bn. Household names such as St Gobain, the glassmaker, and Matra, the defence and electronics group, were released. The sales ended in 1988 with the return to power of the socialists. A progressive softening of their stance over the next few years led to the gradual resumption of selected disposals, but sell-offs have remained on the back-burner, raising only about Fr16bn in 1992.

Enter the Balladur government, which has made it clear that it will turn the heat up as quickly as it can - not least because the government's coffers badly need the revenues.

Prime candidates for early disposal are the remaining 36 companies from the 1986-8 list.

Some of these have a stock market quotation and would be among the simplest, if not the showiest, initial disposals.

In this category, and top of many lists to be the first such sell-off, is Rhone Poulenc, the chemicals company. The state owns 42 per cent of the business worth about Fr13bn, though this rises to 63 per cent if shares in the hands of state-owned banks and insurance companies are included. The remainder of the company is publicly traded.

Rhone Poulenc favours further privatisation as it badly needs fresh capital to reduce its Fr32bn of debt, the result of a spending spree that culminated in the dollars 3bn ( pounds 2bn) purchase of US pharmaceuticals group Rorer in 1990.

Reshaped as Rhone Poulenc Rorer, in which Rhone Poulenc has a 60 per cent stake, this was floated on the stock market two years ago with a capitalisation of about Fr38bn in an ICI-style split.

Following hard on its heels is Elf-Aquitaine, the quoted oil company run by Mr Loik Le Floch-Prigent. In March last year, the state successfully cut its stake in the group from 53.8 per cent to 51.5 per cent.

In Elf's favour is its robustness: despite a slight fall in profits last year, it is operating against a relatively favourable business background and is a soundly run company.

Against that is its high visibility. As the British Government demonstrated when the Kuwaitis picked up 20 per cent of BP, few countries find it easy to live with the idea of control of the national oil company passing overseas.

Then again, Mr Le Floch- Prigent is very much a socialist appointee, and his continued presence is by no means certain. It is more likely the government will want to wait a little while before tackling this hot potato.

One of the new government's declared aims is the disposal of as much of the state- dominated insurance and banking sector as the market will wear. The state has controlling stakes in most of France's largest insurance and banking groups.

Among the insurers, Assurance Generale de France (AGF) should start the ball rolling, despite a 45 per cent fall in profits last year thanks to the collapsing property market. Other insurers have fared even worse: Union d'Assurances de Paris (UAP) made a smaller profit than AGF last year on a turnover twice as big.

It is a similar story among the banks, where Banque National de Paris is the preferred candidate despite a 26 per cent fall in 1992 profits.

With the state effectively holding 60 per cent (UAP has a 10 per cent holding, with the remainder in public hands) and a likely market capitalisation of Fr40bn, it could raise the biggest sum yet in any privatisation for the state.

BNP also has a ready-made stakeholder in the German Dresdner Bank, with which it has already agreed in principle to make a partial share swap, though what view the government will take of this is unclear. Some commentators believe that because its president, Rene Thomas, has reached retiring age and will need to be replaced, BNP will have to wait until next year.

Under its entrepreneurial head, Jean-Yves Haberer, Credit Lyonnais has been the bank that has proved the most commercially active. But a series of unwise loans have damaged the bank, which last month reported losses of Fr1.8bn for 1992. Its profitability will have to be restored before it can join the queue.

It is one of a number of the groups on the 1986-8 list, such as the loss-making Bull computers and struggling Thomson electronics, that look difficult to sell for commercial reasons until the climate improves. Further out, growing speculation surrounds the fate of Renault, the state-owned car maker.

(Photograph omitted)

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