France Sells Shares of Safran, Further Sales on the Horizon

Arnaud Montebourg in Toulouse. Photo: Jackolan1 for Wikimedia Commons

Arnaud Montebourg in Toulouse. Photo: Jackolan1 for Wikimedia Commons

Last week, the French state sold a portion of its shares in the aeronautic equipment manufacturer Safran. In light of the successful transaction, Minister of Industrial Renewal Arnaud Montebourg announced on Friday, April 5 that this type of operation might be repeated. The French government has begun undertaking such selloffs in an effort to pay down the national debt. The state is currently a holder in a dozen businesses, possessing shares worth some 57.5 billion euros.

“In the setting of budgetary restructuring and the modernization of public policies, we are considering changing our participation,” Montebourg stated in an interview with the Wall Street Journal. “We are not excluding this type of action, however [because] we do not want to lose our influence over the businesses.” Montebourg insinuated that the government would be backing out to a degree in order to cut costs, but not enough to lose control.

After lowering the debt in 2012, the government recognizes that it did not reach its objective of a deficit of 3% of the GDP this year, and has negotiated a delay with the European Commission. Not reaching the deficit goal can be likened to not reaching a quota, and the problem had to be discussed between the two entities.

It is expected that the Commission will accept on the condition that France reduce the deficit to substantially below the 3% mark by 2014. Failing to meet the target in 2012 and the continuing economic recession both represent serious roadblocks. The sale of some state assets, like corporate stocks or property, have traditionally been undertaken to address high public debt.

Last week’s sale was equivalent to 3.12% of Safran’s total shares, and came to some 448 million euros. The state remains the primary shareholder of Safran with 27.08% of total shares, which allows it to maintain its influence. Hollande plans to allocate funds from sales of this type to the Public Bank of Investment to be used in financing and developing French businesses. Its primary focus is small and mid-size enterprises. It is a new institution, having been created this past December by Jean-Marc Ayrault.

In addition to its shares in Safran, the French government holds a majority stake in EDF (Electricity of France; the government is thought to own around a stake worth some 23 billion euros), Areva, and Airports of Paris. It also holds minor shares in France Telecom (13.4% or a stake worth about 3 billion euros), Air France-KLM, GDF Suez (36.71% or about 13 billion euros), and finally Renault (15.1% or about 2.3 billion euros).

While selling off shares to private investors is a quick way to help balance the books and pay down the debt, the government would have to give up an element of control that it seems keen on keeping, as Montebourg has insinuated.

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