France Télécom chooses bond sale over government loan

15 Jan 2003

France Telecom [NYSE: FTE] has said that today’s planned sale of EUR5.5 billion worth of bonds will enable it to honour its debt repayment targets for 2003 and negate the need for it to draw down on a controversial credit facility being offered by the government. Approximately EUR15 billion of the operator’s estimated EUR65 billion worth of debts fall due for repayment this year, with a further EUR35 billion falling due in 2004 and 2005. It raised EUR3 billion from a bond issue in December 2002 and at the end of the year claimed to have more than EUR9 billion in cash at its disposal. Today it is expected to sell EUR1 billion of five-year bonds, EUR3.5 billion of 10-year bonds and EUR1 billion of 30-year bonds, with interest rates ranging from 6.2% to 8.2%.

France Telecom plans to raise a further EUR15 billion in new equity during 2003 and is looking at the possibility of capital increases in March and September. On 5 December the operator, which is 56%-owned by the government, announced that it would receive a EUR9 billion loan from the state which it planned to repay with funds from its 2003 share sales. The announcement sparked widespread protest, with rival French telco Bouygues Telecom sending a list of complaints to the European Commission maintaining that the move meant the French public was being forced to pay twice to help France Télécom, the other time being during the PTO’s purchase of mobile operator Orange in May 2000. Although France Télécom has now said it will not use the back-up line of credit, it remains defiant that provision of the facility does not constitute state aid, claiming that, as the state is its majority shareholder, the credit facility would have merely been an advance of the government’s pro rata contribution to the forthcoming planned EUR15 billion capital increase. The EC has opened a preliminary inquiry into the matter.