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Leftist Victory Stalls French Telecom Sale

Europe: Amid political shake-up, delay of utility's privatization stirs fresh doubts over monetary union.

June 03, 1997|From Bloomberg News

PARIS — The election of a Socialist-led coalition prompted the postponement of France Telecom's initial public offering--scheduled to kick off Thursday--in the first direct fallout from the weekend balloting.

The Telecom privatization is a key part of France's strategy to meet guidelines for the adoption of a common European currency, and the postponement--and possible cancellation--of the sale underscored concerns that the Socialist victory threatens the prospects for monetary union.

Until a new government is formed and determines its policy toward the planned sale of a minority stake in the state-owned telecommunications company, the calendar of the sale is effectively delayed, France Telecom and departing government officials said.

But French stocks rose, rebounding from a 1.2% postelection drop at the opening, as analysts said the new Socialist-led government may help retail sales and as fresh doubts about European monetary union boosted the dollar.

The dollar, which rose more than 7 centimes above Friday's close to 5.8235 francs, as investors sought a haven from doubts about the French franc and other currencies involved in monetary union, helped Elf Aquitaine, Total and other companies with sales priced in dollars.

The government was scheduled to announce an initial price range for shares Thursday, with the offering scheduled from June 24 to July 1.

"It's impossible" for the public offering to start Thursday, said France Telecom spokesman Bruno Janet.

While campaigning over the last month, Lionel Jospin, head of the Socialist Party who was named prime minister on Monday, said his party would block the France Telecom stake sale if it won. He later softened his stance, saying he wasn't categorically opposed to a sale.

A new government is not expected to be formed until later this week, meaning it will not be able to clarify its policy on France Telecom for several days, analysts said.

The previous center-right government counted on the France Telecom sale to raise between $5.17 billion and $8.61 billion in what was expected to be the country's biggest initial public offering. Proceeds from the sale were to help reduce government debt.

Its cancellation would make it harder for France to meet budget-deficit and debt requirements to qualify for European monetary union. France needs to get its budget deficit down to 3% of gross domestic product this year from 4.2% last year to qualify.

Elie Cohen, an economist at the National Center for Scientific Research, said the Socialists would probably suspend certain state asset sales as a "symbolic measure" and then proceed with them.

Still, Jospin will have to be careful about how he goes forward with the sale. France Telecom's two biggest labor unions, the SUD-PTT and Confederation Generale du Travail, are opposed to the sale amid concern about job security for the company's 150,000 employees.

Michel Bon, chairman of France Telecom, has said the Socialist calls to scrap the sale would jeopardize the company's ability to compete. From Jan. 1, 1998, all European Union countries must open their domestic telecommunications markets to competitors.

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