Vivendi Universal was hit by an official investigation into its accounts yesterday as the media giant put together a deal with banks that could see it through its immediate liquidity crisis.
The French stock market watchdog, the Commission des Operations de Bourse, launched a investigation into Vivendi's books dating back to the start of last year. It is thought the regulator is concerned that the company apparently concealed the extreme financial pressure it was under over its bank debt. It was the cash crunch that finally led to the ousting of chairman and chief executive Jean-Marie Messier last week.
It emerged, from downgrades by the credit ratings agencies, that Vivendi has €6bn (£4bn) of debt due this year and a further €3bn in the first half of 2003. Its cash and existing bank facilities only covered about €2.4bn. That caused Moody's to rate Vivendi's debt at junk status.
The company yesterday appeared to be close to two agreements with its banks, although there was no official announcement. The group secured a new €1bn loan from a consortium of six banks, led by Société Générale and BNP Paribas. Vivendi also reached agreement on rolling over €3bn of existing debt, due to be repaid as early as the end of this month. Vivendi shares rose 1.7 per cent to€18.31.
Roger Appleyard, a credit analyst at ABN Amro, said: "Last week's disclosures [on debt] came as a big shock.... These latest loans should see Vivendi through to the end of this year but they've still got to sell something. They can't just keep refinancing, otherwise they'll just be another crisis at the end of this year."
The new management at Vivendi, led by Jean-Rene Fourtou, is urgently reviewing the company's sprawling collection of assets. One of the most obvious disposals it could make is its stake in SFR, the French mobile phone operator, to Vodafone, which has made no secret of its desire to acquire this business.
Vivendi's US and French media assets could also come on to the block, as could its remaining 43 per cent interest in its legacy water business.
Christopher Legge, at Standard & Poor's, the credit rating agency, said Vivendi's latest bank agreements were "pushing in the right direction", though the company remained on credit watch. He added: "This pushes them closer to getting over the hump but we are still watching cautiously what actually gets signed up. We have been surprised by this company before."
Moody's said earlier this week that even the Ba1 junk rating it assigned to Vivendi was dependent on urgent financial and corporate restructuring. "In the absence of a resolution to Vivendi Universal's liquidity issue in the very near term the company faces a worsening liquidity situation which could result in further severe downward migration of the ratings," Moody's said.
The conditions attached to the new banking arrangement are likely to be more onerous than the previous debt and the ratings agencies will wait for the company to spell out in detail the terms of the loans before making further changes to the Vivendi credit rating. The new loans could be dependent on certain asset sales.
Under Mr Messier, a string of expensive acquisitions transformed Vivendi, once a water company, into a media and entertainment giant, second only in size to AOL Time Warner. But this spending spree gave Vivendi Universal the biggest debt load in French corporate history, of about €18bn.
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